A lot of times, people find themselves in a complicated situation when their vehicle is seriously damaged or destroyed. The real challenge is when the sum assured by an insurance company is lesser than the actual losses incurred. This is because the insurance company never provides coverage only to the extent of the Insured Declared Value of the vehicle. To understand the concept better, let’s understand when a vehicle is considered to be in a state of total loss.
Total Loss:
In case of a total loss of a vehicle, the overall cost of repair and retrieval of the vehicle exceeds 75% of the Insured Declared Value (IDV) of the vehicle. In such a case, the insurance company reimburses the current IDV of the vehicle minus the amount of compulsory excess. The vehicle owner needs to shift the vehicle salvage to the insurer’s suggested premise and transfer the ownership of the damaged vehicle to the insurer. The insurance company may also direct the insured to get the registration of the vehicle cancelled from the RTO.
Constructive Total Loss:
In case of a constructive total loss of the vehicle, the total cost of retrieval of the vehicle exceeds its current market value. In such cases, it is practically not feasible for the insurance company to go for the retrieval and they treat the claim as a total loss. The policyholder in case of a constructive total loss gets the current IDV of the vehicle as reimbursement from the insurance company.
Insured Declared Value And Total Loss:
The Insured Declared Value of any vehicle is determined by subtracting the applicable depreciation from the ex-showroom price of the vehicle at the time it was insured. The IDV of a vehicle is determined at the beginning of each policy period.
Calculation of IDV:
Insured Declared Value (IDV) = Manufacturer's listed selling price of the vehicle + Total value of accessories – Depreciation applicable based on age of the vehicle
The manufacturer’s listed selling price includes the original cost of the vehicle + state taxes + duties/ cess, and other taxes. However, it does not include the cost of vehicle registration. For example, if two years ago a car was purchased for Rs.5 lakh and the cost for the same car is now raised to Rs.5,20,000, the IDV will be computed based on depreciation applicable on the current value, i.e. Rs. 5,20,000. On the other hand, if the price of the same car is now reduced by Rs.20,000, the IDV will be calculated on the selling price of Rs.4,80,000.
For the purpose of insurance claim, the rate of depreciation for different car parts is as follows:
| Car Parts | Rate of Depreciation |
| Paint work | 50% (if a consolidated amount is charged for painting, the cost of painting material is considered to be 25% of the total cost) |
| Nylon, rubber, plastic parts, batteries and airbags, tires and tubes | 50% |
| Fiberglass components | 30% |
| Glass components | No depreciation |
For calculation of IDV, the depreciation is charged based on the age of the vehicle on the following basis:
| Age of the Vehicle | Depreciation Rate for Calculating IDV |
| New Vehicle (Before purchase) | 5% |
| Below 6 months | 5% |
| 6 months to 1 year | 15% |
| 1 year to 2 years | 20% |
| 2 years to 3 years | 30% |
| 3 years to 4 years | 40% |
| 4 years to 5 years | 50% |
| Above 5 years (model is obsolete) | determined mutually between vehicle owner and insurance company |
After a car passes the age of 5 years, the sum to be insured for the vehicle is determined after an assessment. This assessment can be done by an authorised car dealer, surveyor, or an authorised used car dealer.
Replacement of Car In Case of Total Loss:
As explained above, the insurance company is not liable to reimburse any amount more than the IDV determined for a vehicle. In case of total loss of the car, the same rule will be applicable. Your car insurance policy may not get your damaged car completely replaced but it can surely help you minimise the losses. With the reimbursement received you may add some extra amount and get yourself a new car.
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