Total Loss in Car Insurance

A car is totalled in insurance terms when the car is damaged to the extent that its repair cost exceeds the insured declared value. Under such a situation, a car is declared a total loss. In simple words, a vehicle is damaged so badly that it cannot be restored to a safe, roadworthy condition.

As per regulatory norms in India, a total loss in car insurance is generally declared by the insurance provider if the repair cost exceeds 75% of the vehicle's insured declared value. This insurance concept acts as a safeguard which prevents policyholders from sinking their funds into a damaged vehicle.

Similar to total loss, constructive total loss is another term used in a car insurance policy. It usually means your car is damaged so badly that repairing it would cost more than its current insured value (IDV) or exceed the insurer's percentage limit.

In simple words, the car can technically be repaired, but it is not financially practical to do so. In such cases, the insurer treats it almost the same as a total loss and pays the IDV.

Rules for Constructive Car Total Loss

Under Section 55 of the Motor Vehicles Act of 1988, when a vehicle is declared a constructive total loss, policyholders must report the incident to the regional transport office. This should be done within 14 days of the incident. In addition, vehicle owners need to cancel the vehicle's registration.

Also Read: Constructive Total Loss in Car Insurance

There are different scenarios in which damage is considered a total loss. Let us highlight those scenarios.

Total Loss by Theft

Car theft is a very significant and common problem in India. So when the car is stolen, it will be considered a total loss. However, in such a situation, the policyholder must file FIRs, and there must be documentation from the police authority stating that the vehicle cannot be located.

Total Loss by Accident

A vehicle may also be declared a total loss after a severe accident. This happens when the damage is so extensive that the car cannot be repaired safely, or the repair cost is extremely high compared to its IDV. In such cases, the insurer pays the IDV after deducting the salvage value.

Total Loss by Natural or Manmade Calamity

Events such as floods, cyclones, earthquakes, riots, fires, or vandalism can cause damage so severe that the vehicle becomes unusable. If the car is damaged beyond repair in such incidents, the insurer will classify it as a total loss and settle the claim based on the IDV.

The concept of total loss in car insurance offers clarity to vehicle owners. Here are some of the benefits of defining totalled cars in insurance.

Financial Protection

One of the benefits of a total loss in a car insurance plan is that it provides financial protection for vehicles. Since the insurer pays the car’s IDV, it covers the biggest part of the loss and gives you the freedom to replace the vehicle without carrying the entire cost on your own.

Avoid Uneconomical Repairs

When the repair percentage of the vehicle exceeds 75% of the insured declared value, the insurer will consider it a total loss. With this in place, policyholders will not waste their hard-earned money on vehicle repairs. It prevents policyholders from uneconomical repairs.

Complete or Full Payout

When a car is declared a total loss, the insurer settles the claim by paying the full Insured Declared Value. This payout accounts for the largest share of the financial loss and gives the policyholder a clear, predictable amount to work with.

Streamlined Claim Resolution

Total loss in car insurance claims is generally straightforward. Once the surveyor confirms that the vehicle cannot be repaired economically or safely, the claim moves ahead quickly. This leads to faster settlement and less back-and-forth for the policyholder.

Calculating the car's total loss involves assessing the vehicle’s insured declared value. If the repair and retrieval expenses exceed the percentage limit set by TATA AIG, they will be treated as a total loss. In such a case, the insured declared value of the vehicle comes into play.

Role of Insured Declare Value

IDV, or insured declared value, is the maximum claim amount a vehicle owner will receive in the event of theft and damage beyond repairs. Vehicle owners generally set the IDV when purchasing a car insurance policy. If the IDV of the vehicle is too low, then the premium will be lower, but the payout during a total loss claim will also be much lower.

However, if the IDV of the vehicle is higher, you will receive a higher claim payout in the event of a total loss, but you will also need to pay a higher premium. Considering this, vehicle owners need to select an appropriate IDV when buying a car insurance plan based on their vehicle’s needs.

How is IDV Calculated

The IDV of the vehicle is calculated by assessing the manufacturer’s listed price. It also accounts for the vehicle's depreciated value based on its age. The IRDAI sets the depreciation percentage. Here is the breakdown of the depreciation percentage for vehicles.

Depreciation Rate for Car Parts

Formula for IDV Calculation

The general formula for calculating the insured declared value of a vehicle is -

IDV = (Manufacturer's Listing Price - Depreciation) + (Cost of Accessories - Accessory Depreciation)

Also Read: Insured Declared Value (IDV) In Car Insurance

Let us understand the total loss in car insurance by example. Mohit owns a 4-year-old Hyundai i20 and has bought a car insurance plan from TATA AIG. Based on the car’s age and the insurer’s depreciation schedule, the IDV was fixed at ₹5.5 lakh when he purchased the policy.

A few months later, Mohit met with an accident while returning home from work. The accident caused major damage to the Hyundai i20 engine and structural components. He notified TATA AIG about the incident. A surveyor has been assigned to assess the vehicle damage and repair cost.

After a complete inspection, the repair estimate came to around ₹4.3 lakh. This amount was almost 78 per cent of the car’s IDV. Since the repair cost exceeded 75 per cent of the vehicle's value, the vehicle was classified as a Constructive Total Loss.

Under this situation, Mohit did not have to bear the huge repair bill. TATA AIG processed the claim as a total loss and offered him the IDV amount of ₹5.5 lakh, after deducting the salvage value. This payout helped him recover from the financial setback and gave him enough support to replace the damaged car with another vehicle.

Vehicle owners can increase total loss coverage by adding the voluntary add-on to their car insurance policy. These are additional offerings by TATA AIG to enhance the vehicle coverage based on your requirements. TATA AIG offers a return-to-invoice add-on that can help increase total loss coverage.

Return to Invoice

A return to invoice is an essential add-on that helps recover the full amount of the vehicle, including registration charges and taxes. In the event of the total loss, if you have returned to the invoice add-on, then you will get compensation equal to the car’s invoice value and save you from incurring a loss.

For instance, Mohit has included this add-on with a car insurance policy. At the time of the accident, the car’s IDV was ₹5.5 lakh, but the original invoice value was ₹7.2 lakh, including registration and taxes. After the surveyor declared the car a total loss, the insurer checked his add-on coverage.

Since Mohit had Return to Invoice, he did not have to settle for the lower IDV payout. Instead, the insurer paid him the full invoice value of ₹7.2 lakh. This helped him recover the full amount he had originally spent on the vehicle and prevented depreciation-related financial loss.

Also Read: Return to Invoice Cover

The premium for a car insurance policy with total loss depends on various factors, such as the vehicle make and model, the insured's declared value, and more. Let us understand these factors in detail.

Car’s Make and Model

One factor that affects the car insurance premium is the car's make and model. A high-end or luxury vehicle generally has a higher premium due to premium parts, while the regular or base-model car has a lower premium. When buying a car insurance policy, vehicle owners need to consider the car's make and model.

Insured declared Value

Another thing that affects the car insurance policy premium is the insured declared value. Vehicle owners need to select the IDV when buying a plan. The higher the IDV, the higher the premium and claim payout in the event of total loss. At the same time, lower IDV leads to lower premiums and claim payouts.

Geographical Location

Vehicle geographical location is another essential factor in determining a car insurance premium. If a vehicle is registered in an area with a high probability of theft and damage, the insurance premium will be high. This is because a vehicle in such a location is highly likely to file a car insurance claim.

Add-On Covers

When buying a car insurance policy, adding extras can increase premiums. These add-ons are voluntary enhancements to vehicle coverage; for this, the vehicle owner pays an extra price, which increases the car insurance overall cost.

Claim Frequency

The number of claims filed during the policy period can also affect the total loss scenario. Vehicle owners who file frequent claims are considered risky drivers, leading to higher car insurance premiums. Furthermore, it affects the no-claim bonus and increases future premium costs.

Also Read: What Is a Car Insurance Premium? How Does it Work?

When filing a car insurance claim for a total loss, there are certain pointers vehicle owners should keep in mind.

Policy Coverage

If you are filing a claim for total loss in a car insurance plan, then the first thing you need to know is the type of policy coverage. A total loss scenario is applicable with a comprehensive car insurance plan. If you have third-party car insurance, then you will not be eligible to file a claim.

Insured Declared Value

Another factor to consider when filing a claim for total loss under a car insurance policy is the insured's declared value. It is the amount vehicle owners will receive in the event of total loss or theft. Before initiating a claim, it is essential to understand the car insurance plan's IDV.

Add-On Covers

Another thing to check before filing a claim is whether you have returned an invoice add-on. Without this add-on, you will receive the claim payout based on the vehicle's depreciation and insured declared value. However, with this add-on, the claim payout will be higher.

Timely Intimation

Informing the insurer as soon as the incident occurs is crucial. Delayed intimation can lead to complications or even claim rejection. Reaching out to the TATA AIG support team within the required timeframe helps the insurer begin the assessment quickly and ensures your claim stays valid.

Police Report (FIR)

In cases such as theft or major accidents, filing an FIR is mandatory. This report serves as an official record of the incident and helps the insurer verify the claim. Submitting the FIR and related documents on time speeds up claim evaluation and increases the likelihood of a quick settlement.

Navigating a car insurance claim for a total loss is easy with TATA AIG. Here is a step-by-step guide to filing a claim.

Step 1: Notify the TATA AIG Representative

In the event of an accident or damage, vehicle owners need to notify the TATA AIG representative via the self-service portal or by calling the helpline number (022 6489 8282).

Step 2: Gather Necessary Documents

After notifying the representative, gather all essential documents, such as the car insurance policy, vehicle registration, driving licence, FIR report, and more.

Step 3: Assessment by Surveyor

A surveyor will be assigned to assess the vehicle. Based on the vehicle assessment surveyor will decide the level of damage. The surveyor submitted the report to the representative.

Step 4: Submit Claim Form and Documents

Vehicle owners also need to submit the claim form and other documents to representatives. This will help representatives assess the plan and its coverage.

Step 5: Verification of Admissibility

After receiving the documents and assessment report from the surveyor, the representative will verify whether the claim is eligible for total loss.

Step 6: Compensation Calculation

If the vehicle is classified as a total loss or a constructive total loss, the compensation amount calculator will be used.

Step 7: Approval of Claim

After that, the representative will approve the claim request and notify the policyholder via email. Vehicles also need to cancel their registration at the RTO office and submit the cancellation certificate in the event of total loss.

Step 8: Receive Settlement Amount

Upon receipt of all documents, TATA AIG will pay the compensation amount to the policyholder in accordance with the policy's terms. The amount will be transferred directly to their bank account.

Here is the list of documents vehicle owners need to submit to file a total loss claim with their car insurance provider.

• Insurance claim form (Fill it out accurately)
• Surveyor’s report stating the total loss
• Copy of FIR (in case of theft)
• Copy of driving licence
• Copy of TATA AIG insurance policy
• Copy of the car registration certificate
• Other documents, as required for your specific case

A total car loss can be a disappointing situation for any car owner, and a rejected insurance claim only adds to the financial strain. To avoid landing in a claim rejection situation in case of total loss, here are some important tips.

• Renew your policy on time, as an insurance company will not accept a total-loss claim for a lapsed policy.
• Disclose all essential information about the vehicle to the insurer when filing the claim, such as modifications, to ensure a successful claim.
• Report the incident that caused total damage to your car to the TATA AIG team as soon as possible. Late reporting may be a reason your claim is rejected.
• Avoid filing fraudulent claims or misrepresenting yourself to the insurance company, as this can lead to policy cancellation.
• Do not drive in an intoxicated state, as the insurance company will reject your claim outright.

Understanding all about the car total loss meaning, its working, benefits, claim process and more is crucial for vehicle owners. This helps vehicle owners receive fair compensation when the car is damaged beyond repair.

It also guides you on the right steps to take after a severe accident, theft or calamity, and helps you make the best use of your car insurance policy when you need it the most. When you buy a car insurance plan, it is crucial to check whether it covers a total loss.

TATA AIG offers a comprehensive car insurance plan that provides wide protection against major risks, including total loss and constructive total loss. Furthermore, our comprehensive car insurance policy includes unique add-ons, such as return to invoice, which helps recover the car’s invoice value, including taxes and registration fees, in the event of a total loss.

Apart from this, we also offer add-ons such as zero-depreciation car insurance, which helps you receive the full claim payout without depreciation. With this add-on, policyholders can fill the financial gaps between actual expenses and the amounts covered by insurance claims. So what is stopping you now? Get your vehicle protected with our car insurance policy starting at ₹2094 per year.