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What is Total Loss in Car Insurance?

By Vikas Chandra Das
21 July 2022, 11:46 AM

It is quite upsetting to see your most prized possession in mess and one small misstep on the road is capable of landing your car in such a situation. In circumstances where it is impossible to salvage the remains of the car and find any more use for it, one can take refuge in the car insurance policy that was purchased years ago to serve in such difficult times. 

Wondering what the process is and require a simple guide? Then you have come to the right place. Read on to learn more.

What does a Total Loss in Car Insurance Mean?

This term total loss is rather self-explanatory – it describes a situation in which the damages caused to the car are so grave that the cost of repairing the car would amount to 75% of the Insured Declared Value (IDV) of the car. The IDV is calculated as the market value of the car and depends on the factors such as age, make, model of the car etc.

In circumstances where the repair of the car will exceed the market value of the car, then it will be labelled as a total constructive loss. 

The circumstances under which the said situation is to occur are – 

  • When the car is stolen and cannot be recovered by the owner.
  • When the car has been damaged due to an accident (with or without the involvement of a third party).

Let's understand this with the help of an example-Arjun purchased his favourite car in 2018. He lives in Mumbai and in an area where car loots are common. On one unfortunate day in 2021, his car was missing. Someone stole his car and he was very worried about it. He approached his insurance company and informed them of the entire incident. The inspector from his insurance company came to Arjun's place and took an inspection. Arjun had also filed an FIR of his stolen car. Days went by but police officials did not find his car. Hence, Arjun got the Non-Traceable Certificate from police officials, which helped in the claim process. Since it is a case of car theft hence Arjun had to submit this certificate to his insurance company to get compensation equal to the IDV of his car. However, Arjun had also opted for a Return-to Invoice Add-on Cover, considering the risk at his residential area hence he received the full invoice value of his car.  

How does the Claim Settlement Process Work in This Case?

  • The claim settlement process is more or less similar to a regular car insurance claim.
  • One must contact the insurance company on the toll-free number to inform them about the condition of the car.
  • Simultaneously, one must fill in the insurance claim form and submit all the relevant documentation along with it. In case there has been a theft of the vehicle, then the FIR filed with the nearest police station must also be submitted.
  • In doing so, the insurance company will appoint a surveyor who will come and inspect the damage done to the car. If the damage caused is greater than 75% of the IDV, then, the claim will be processed and the value of the IDV of the car will be paid to the policyholder.
  • In case of the theft of a vehicle, however, the veracity of the claims will be assessed by the insurance company without the help of the surveyor.
  • After the vehicle is declared as a total loss by the insurance company, then one needs to get in touch with the Regional Transport Office within a period of 14 days to submit and cancel the Registration Certificate of the vehicle.
  • It is important to note that irrespective of the quantum of damages/ cost of repairs, the insured will be guaranteed the entire sum of IDV (subtracting the deductibles) in case of a total loss.
  • In case the policyholder has a return to invoice cover on their comprehensive car insurance, then for a claim of total loss or constructive total loss, the insurance company compensates for the lower of the two values –
    • The price of the vehicle, which includes the Road Tax, Ex-Showroom Price, and Registration Charges that were levied when making the purchase.
    • The current replacement price includes the Road Tax, Ex-Showroom Price, and Registration Charges in case the same model is available.
    • The total loss may be caused due to fire, floods, landslides, accidents, etc.

Can You Fight a Total Loss Claim?

In case one feels that his or her claim has been wrongfully rejected, then they may approach the insurer’s Internal Dispute Resolution Department with the grievance aired in a written format along with the requisite documents and proof. 

If there is no relief from the insurer’s internal department, then the matter can be escalated to the insurance ombudsman or the Grievance Redressal Cell in the Consumer Affairs Department of the IRDA.  

Are You Allowed to Keep Your Car after a Total Loss?

In case of a total loss of the vehicle, the owner is to hand over the possession of the car and shift the vehicle salvage to the insurance company’s premises. 

The ownership will also have to be transferred to the insurer and the registration of the car at the RTO will have to be cancelled by the policyholder. In return for this, the insurer will reimburse the current IDV of the vehicle.

However, in the case of total constructive loss, there is no requirement for transfer of possession and ownership of the vehicle to the insurance company as the cost of retrieval will far exceed the market price. The RC however, must be cancelled within a period of 14 days.

Final Pointers to Keep in Mind

Though car insurance companies will offer policyholders the replacement cost of the car or the IDV, the reimbursement process also includes some factors like depreciation and deductibles.  

However, owning a return to invoice add-on will help the policyholder also get the difference between the IDV and the invoice in case of total loss. This cover, however, can only be availed for cars less than 3 years old. 

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