Total Loss in Car Insurance Explained

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4 min read

Updated on Jul 13, 2022

Choudhary is a privately employed person in Bangalore, and he uses a car to commute to his office daily. While driving his vehicle one day, he met with an accident that resulted in major damages and rendered his car useless. Since he had a car insurance plan, he claimed total loss and that helped him manage expenses without causing any financial burden on him.

Car insurance involves several different types that provide ways to get maximum protection from potential risks. However, car owners should know more about the important terms used in car insurance that would help them make claim if they encounter any mishap in the future. Not only that, having the right knowledge also allows a person to make the right decision when buying a new insurance plan. One such important term for car insurance is “total loss,” a term that every car owner should know about.

What is the total loss in car insurance?

It is important to know what total loss means in a car insurance. When the cost of repairing a damaged car is more than 75% of the IDV, it comes under total loss. However, an insurer will include damage under total constructive loss when the damage is 100% of the IDV. The total loss of a car vehicle can occur due to thefts and damage caused by accidents. In most cases, an insurance company will decide the total loss when a car owner raises a claim.

Knowing more about Car IDV (Insured Declared Value)

A car owner should understand what is IDV before purchasing an insurance plan. The insured declared value, shortly known as IDV, is the maximum sum insured amount determined by an insurer. It allows a car owner to get high compensation in case of theft and damage. At the same time, IDV will go down over time and represents the current market value price of a car. Having low IDV may lead to a lower claim amount that can lead to unsatisfactory recovery. Therefore, it is important to calculate the IDV with a calculator that will help estimate the accurate amount that the insurer will approve.

Also Read: What is IDV and Its Affect on Car Insurance Claims?

What are the factors that can affect IDV of your Car?

Those who have cars should know the factors that can affect the IDV. Some of them include age of the vehicle, date of registration of the vehicle, model, make, variant, CC, current mileage, and vehicle type. One should keep them in mind the above factors before choosing car vehicle insurance. This, in turn, gives adequate protection from damage and other issues.

How do insurance companies decide the total loss value?

An insurance company will determine whether a car requires repairs or declare it as a total loss after a claim is made. It calculates the total loss value based on certain important factors such as the company’s rules, make, state rules, manufacturer, etc. Furthermore, an insurer will appoint an adjuster to inspect the condition of a damaged car.

Besides that, the adjuster will also calculate the actual cash value after taking into consideration the depreciation and the market demands. How total loss is calculated majorly depends on factors like mileage, make, physical wear and tear, model, manufacturing area, and demand and supply in the area.

What is Return to Invoice Cover in an insurance plan?

Return to Invoice Cover is an add-on cover offered by an insurance company, and car owners can purchase the same by paying additional amounts. It offers compensation not only for the IDV but also for the total price on the car invoice at the time of purchase. The primary advantage of Return to invoice cover is that it bridges the gap between the value of the car and the calculated IDV. However, this feature is not available in the case of third-party insurance cover.

Knowing more about total car loss insurance settlement 

Car insurance companies will settle a total loss claim by considering the depreciation of an insured car. The rate of depreciation for different parts may vary from one insurer to another insurer in a location. Insurance company use a total loss formula to come to the amount.

How to choose the best car insurance plans?

While buying a car insurance plan, customers should consider certain important factors that ensure a smooth claim process. The first thing is to know the needs, which provide methods to invest money according to requirements. Insurance companies offer comprehensive and third-party plans for customers. Claim settlement is another thing to consider when buying a plan. Companies with high claim settlement ratios have a better probability of offering claim approval at the earliest.

It is wise to know when a car is declared a total loss that will help avoid losses caused by accidental damages. This enables customers to prevent unwanted complications in the claim process. Several insurance companies offer car insurance plans in the market, and not all of them are the same. Therefore, customers should evaluate them with more attention to select the best one.

The bottom line 

Theft and damages can lead to a total loss that can be claimed accordingly. At the same time, not all damages come under the total loss category. Car owners should know what is the total loss formula by researching online or from other reliable sources. The formula allows a person to focus more on the objectives while buying an insurance plan. PayBima provides the perfect tools for anyone to evaluate different insurance offerings and whether an insurer offers features like the return to invoice coverage add-on to a car vehicle when it comes to accidental damages. Knowing about the right features and add-ons to look for will help one buy the right car insurance policy.

Feb 21, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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