Explained: What is ‘total loss’ in car insurance and how to tackle it

• It is that time of the year which unfortunately will see the most car damage, and especially ‘total loss’, claims being filed.
  
• If the repair estimate is above 75% of insured declared value (IDV) of the vehicle, it will be declared beyond repair.
  
• Depending on the surveyor’s recommendation, you can get the IDV amount as compensation.
  

A couple of monsoons back, several areas in South Bangalore were flooded due to heavy rain. Rohit Kumar (name changed) had parked his Hyundai i20 in an open space but unfortunately his car got completely submerged. The next day, when the water receded, the car, as expected, was as good as dead.

With the rain gods ready to make an appearance, here is what you should know beforehand to tackle such ill-fated eventuality, which we hope will never occur.

In insurance parlance, a car that can’t be repaired or is more expensive to repair than its insured value, is called ‘total loss'. In fact Policy Bazaar, says that generally, total loss is declared when repair cost exceeds 75% of the vehicle's Insured Declared Value or IDV.

However, in such a case, where you are an unfortunate victim like Kumar, your insurance policy may help you cover the loss, at least partially.

First, remember these two important steps:

Contact the insurer pronto: If your car is damaged in flood waters, contact the insurance company immediately. You should provide the insurer with the requested information, and based on that, the insurer will provide guidance regarding the necessary steps to follow starting with safely towing the vehicle to an authorised garage.

Document the damage: When registering such a claim, the customer is required to disclose all the details of the incident to the insurer. The insurance company is likely to ask for photographs, videos etc. as evidence to substantiate the claim.

“It is always recommended to document the damage thoroughly and provide the necessary information to your insurer to make your case stronger,” says Vivek Chaturvedi, CMO and Head of Direct Sales, Digit Insurance.

Now, what happens if the car is damaged beyond repair?

After evaluating the extent of damage to the vehicle, the insurance company will provide compensation for the loss. If the damage is repairable, the insurer will cover the cost of repairs. The determination of the repair cost will be based on an assessment of the parts and labour involved.

“The authorised garage will prepare an estimate of repair costs. If the estimate is above 75% of IDV, the surveyor will confirm the case as total loss, and beyond repair,” says Chirag Nihalani, General Manager, Insurance Samadha, an insurance grievance redressal platform.

What next?

When the car is declared damaged beyond repairs by the insurance surveyor, the insured party is entitled to the IDV amount as compensation.

“This could be either paying the customer the claim amount as per the IDV taken in the policy or providing an option to the insured of taking an alternate vehicle through the insurer within the same price range,” says Chaturvedi.

IDV in detail

Insured Declared Value or IDV is the maximum sum insured that an insurance company will provide in the event of a total loss or theft of a vehicle. As time passes, the IDV of a car decreases due to depreciation.

Consequently, in the event of a total loss, the claim amount received by the policyholder will be lower, as it is based on the current IDV of the vehicle.

The add-on one can opt for

Policyholders can benefit from the ‘return to invoice’ (RTI) add-on in cases of complete loss.

“This add-on compensates the policyholder for the total price of the car as mentioned in the invoice at the time of purchase and not IDV,” says Nitin Kumar, Head, Motor Insurance, Policybazaar.com, an online insurance broker.

It is noteworthy that the RTI cover can be purchased only till your car is three years old. You have to pay 15-20% higher premiums than standard car insurance.

Thus, it is advised that one takes a comprehensive insurance policy with relevant add-ons to provide adequate protection against flood like situations.