Some may regard automobile insurance to be a tricky business and might find it hard to comprehend. Primarily because of the terms and conditions that we are usually told to read or the fancy terms that professionals use when explaining our vehicle insurance. When we approach an insurer to buy an insurance policy or initiate a claim, we come across terms like depreciation, insured declared value, no claim bonus, and so on are hurled at us like missiles. These concepts can certainly confuse a layman, and one such jargon is a total loss.
A car is termed a total loss when the cost of repairing it to its pre-damaged condition exceeds 75% of its Insured declared value. The first thing to keep in mind is that a total loss can occur in one of two scenarios: automobile theft or a car accident in which the vehicle has been severely damaged and is no longer usable. The car owner must relocate the wrecked automobile to the insurer's recommended location and hand over ownership of the damaged vehicle to the insurer. The insurance provider may also instruct the insured to have the vehicle's registration terminated at the RTO.
The total loss value is determined by many criteria, including corporate policy, state regulations, and the company's make and manufacturing. This is how you go about accomplishing it: The company appoints a surveyor to examine the damaged vehicle's condition. The surveyor examines the car's physical and mechanical condition to decide whether it needs to be repaired. Following the inspection, the surveyor assesses the car's actual value taking into account depreciation and demand in the area. A car's determined worth is that car's estimated market value in its pre-damaged state. The actual value is determined by several factors, including - Make & Model - Manufacturing year - Mileage - Physical wear & tear - Local demand & supply
When the overall cost of retrieving the car surpasses its current market value, it is termed as a constructive total loss. In such circumstances, retrieval is almost impossible for the insurance company, and the claim is treated as a total loss. In the event of a constructive total loss, the policyholder is reimbursed by the insurance carrier for the vehicle's current IDV. The current market value of your car is assessed at the start of each insurance period, and it is referred to as the IDV. It's computed by subtracting the depreciation from the vehicle's ex-showroom price at the time of insurance.
The Motor Vehicles (MV) Act of 1988, together with the Central Motor Rules of 1989 form the basis of traffic rules that we follow in India. 'If a motor vehicle has been damaged or rendered permanently useless, the owner shall disclose the fact to the registering authorities within fourteen days,' says section 55 of the MV Act. Simply put, you must notify the Regional Transport Office (RTO) within 14 days after your car has been deemed a total loss. Here you must submit the Registration Card and have your vehicle's registration canceled.
The Insured Declared Value (IDV) of a car is the consented market price of the car, which is less than the car's ex-showroom price. It indicates the current market price of an automobile and decreases with time. It is significant to a total loss of a vehicle since the cost of repair vs the IDV of a car decides whether or not the car is a total loss.
Depreciation is assessed based on the vehicle's age to calculate IDV as follows: | Age of Vehicle | Rate of Depreciation for IDV calculation | |:-----------------------------:|:----------------------------------------:| | New Vehicle (Before purchase) | 5% | | Below 6 months | 5% | | 6 months � 1 year | 15% | | 1 year � 2 years | 20% | | 2 years � 3 years | 30% | | 3 years � 4 years | 40% | | 4 years � 5 years | 50% | | Almost 5 years | Decided between insurer & policyholder |
Once the age of vehicle crosses 5-year mark, the sum assured depends on after an assessment done by an authorized car dealer or surveyor.
The depreciation rate of various car parts for insurance claim follow the below standards | Parts | Depreciation rate | |:--------------------------------:|:--------------------------------------------------------------------------------------:| | Glass units | Zero depreciation | | Fiberglass units | 30% | | Batteries, airbags, tyre & tubes | 50% | | Paint | 50%(Out of total amount charged for painting, 25% comprises of painting material cost) |
Your vehicle's market value is determined by the IDV. This is the amount that will be paid to you if your vehicle is considered a total loss. As a result, it's critical to understand the many underlying variables that impact the amount of the insured declared value.
The following are some of these variables:
When it comes to total loss or constructive total loss, the policyholder is only reimbursed for the predetermined amount of the vehicle's insured declared value. As the value of the car depreciates over time, the IDV decreases, lowering the claim payment the subscriber would get in the event of a total loss. Policyholders can greatly benefit from a return to invoice add-on protection in such scenarios. When buying or renewing motor insurance, the policyholder always has this option available. Return to invoice add-on is a very beneficial cover because it enhances the current insurance policy. It guarantees that the policyholder is reimbursed for the complete price of the car as stated in the invoice at the time of purchase, rather than the insured declared value, in the event of a total loss. This helps to close the gap between the whole price of the car and the estimated IDV, ensuring that the policyholder is compensated for the entire valuation of their car rather than just the reduced insured declared value. In the case of third-party insurance, please note that return to invoice add-on coverage is not available. While total vehicle damage is not a situation any policyholder wants to find themselves in, it is nevertheless necessary to grasp the technicalities of the insurance because they will be crucial in the event of a major accident.