When you buy a standard motor insurance policy, the insurer may often tell you the policy will provide you total loss benefit in case of a car accident. However, in reality, you should know that this does not mean that the insurer will cover the complete replacement cost against the claim made by you.
Generally, people are not aware of the exact meaning of a lot of terminologies in motor insurance until they realise it after dealing with it in a real-life situation.
What do you get in case of ‘total loss’?
Generally, for any asset, a total loss means a situation where the repair cost of the damaged asset exceeds its insured value. However, in case of motor insurance in India, a car is considered to be a ‘total loss’ if the cost of repair of a car damaged in an accident, exceeds 75 percent of the insured declared value (IDV) of the car.
Tarun Mathur, Chief Business Officer- General Insurance, Policybazaar.com says that total loss is a term which is referred to a scenario where the repair cost of a vehicle exceeds 75 percent of the IDV of the vehicle, in case of accidental damage. “So, ideally you are eligible to receive the IDV if the vehicle results in a total loss in accidental damage,” he said.
Hence, it does not matter whether the vehicle is just 10 days or 10 weeks or 10 months old, you may not get the replacement cost of the car. In fact, the IDV of the car is generally (for cars up to 5 years old) decided by applying a pre-defined depreciation factor on the car’s ex-showroom price.
Hence, in case of total loss, the maximum payment you get equals to IDV of the vehicle as mentioned in the policy year in which the accident happened.
The IDV is mutually agreed between you and the insurance company and set at the start of your insurance policy. Normally, the IDV is calculated by considering the manufacturers listing price of the vehicle minus depreciation. Cost of registration and insurance premium are not included in the price before depreciation.
Depreciation is a reduction in the value of an asset over time, due in particular to wear and tear. The older the car, the higher the depreciation. To fix the IDV, your insurer adjusts it with standard depreciation rates as per the Indian Motor Tariff Act. Here is the schedule of depreciation for arriving at IDV.
|Age of the car||Percent of depreciation for fixing IDV|
|Not exceeding 6 months||5%|
|Exceeding 6 months but not exceeding 1 year||15%|
|Exceeding 1 year but not exceeding 2 years||20%|
|Exceeding 2 years but not exceeding 3 years||30%|
|Exceeding 3 years but not exceeding 4 years||40%|
|Exceeding 4 years but not exceeding 5 years||50%|
For vehicle above 5 years or car models which are obsolete, the IDV is determined mutually between vehicle owner and insurer. In such a case, the IDV would depend on the percentage of depreciation applied as well as the market value of the car.
‘Return to invoice’ add on can get you cost of new car in case of total loss claim
Kapil Mehta, co-founder, online insurance broking firm Securenow.in says that the insurer is not liable to reimburse any amount more than the IDV determined for a vehicle. Since the IDV is a depreciated value, in case of total loss of your car, you will not be able to get a completely new car with the claim money. “However, if you buy a ‘Return to invoice’ add-on (at time of buying/renewing the policy) then the insurer will also pay the difference between the IDV and the invoice if you have a total loss,” he said. But, this add-on can only be bought along with standard motor insurance for a car not older than two years from the date of purchase.