Some of us may consider automobile insurance to be difficult. Mostly because of the tiny print that we are often told to read or the jargon that professionals use when explaining our bike or auto insurance. When we buy a basic policy or make a claim, terms like depreciation, insured declared value (IDV), no claim bonus, total loss, and so on are hurled at us like missiles.

What Is Total Loss and How Does It Affect You?

In technical terms, a vehicle is considered a total loss when the cost of restoring it to its pre-damaged condition exceeds the value of the vehicle. The first thing to keep in mind is that a total loss might happen in one of two ways. Car theft or a car accident in which the vehicle has been severely damaged and is no longer operable.

Total Loss (TL)

The Motor Vehicles (MV) Act of 1988 and the Central Motor Rules of 1989 are the traffic rules that we follow in India. ‘If a motor vehicle has been damaged or made permanently incapable of use, the owner should disclose the fact to the registering authorities within fourteen days,’ according to section 55 of the MV Act. Simply put, you must contact the Regional Transport Office (RTO) within 14 days after your car has been declared a total loss. Here you must submit the Registration Card and have your vehicle’s registration terminated.

How is it calculated?

Only if the cost of fixing damages exceeds 75% of the Insured Declared Value is a vehicle declared a Total Loss (IDV). The approximate market value of your car is known as the IDV. Constructive TL occurs when the cost of repairs exceeds 100% of the existing market worth. The automobile owner will be compensated in both circumstances with a sum equivalent to the IDV. 

Age of the VehicleDepreciation (reduction in cost) Rate for Calculating IDV
Below 6 months5%
6 months to 1 year15%
1 year to 2 years20%
2 years to 3 years30%
3 years to 4 years40%
4 years to 5 years50%
Above 5 yearsMutually decided between vehicle owner and insurer

For example, suppose the purchase price of a 2-year-old automobile was 5 lakh rupees. In the event of a total loss, your automobile insurance provider would pay you about 3.5 lakh rupees.

It’s not easy to be in a situation where you’ve lost everything. However, your insurance will do everything possible to compensate you for the loss. So, protect yourself from a complete financial loss by insuring your vehicle.

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