Salvage in Car Insurance: How it Affects Your Claim
When it comes to car insurance, most people are familiar with common terms like premium,Read more
What is Salvage in Car Insurance?
In car insurance, salvage is the residual value of a damaged car after a covered event. When a car is severely damaged from an accident, flood, or fire, repairing it may cost more than the car is worth. In such cases, the insurance company may declare it a total loss or constructive total loss (CTL).
The 75% IRDAI Rule for Total Loss
According to IRDAI, or the Insurance Regulatory and Development Authority of India, a vehicle is officially declared a Constructive Total Loss (CTL) if the combined cost of its retrieval and repairs exceeds 75% of its IDV.
- IDV, the current market value of your car, is the maximum sum assured fixed at the beginning of your policy year.
- If repairs cross this 75% threshold, the insurer will not repair the car and will declare it a total loss.
However, even the damaged car may still hold some value because of its usable parts, such as the engine, metal and other components. This remaining value is called salvage value. For example, imagine your IDV in car insurance is ₹8 lakh and your car suffers severe damage in an accident. If its damaged parts and scrap are worth around ₹1 lakh, that ₹1 lakh would be its salvage value.
How is Salvage Value in Car Insurance Determined?
There is no single fixed percentage used to determine salvage value in car insurance. The amount depends on what the damaged car can realistically fetch. Car insurance companies consider certain factors that can affect the salvage value. These include:
- Extent and type of damage
- Condition of major components (the engine and transmission)
- Usable parts and accessories
- Age and model of the car
- Current scrap value of the damaged car
- Demand for recoverable components
- Quotes from salvage buyers
For applicable cash-loss settlements where the policyholder retains the scrap, the salvage value may be assessed using competitive quotes. You can ask the insurer for the basis of the valuation if you want to understand how the amount was determined.
How Does Salvage Affect the Car Insurance Claim Settlement?
When a car is declared a total loss or constructive total loss (CTL) in car insurance, you have two choices:
- Surrender the Car: The insurer takes ownership of the damaged car, sells it to authorised scrap yards to recoup some of their losses, and pays you the claim amount as per policy terms (minus the deductibles).
- Keep the Car: If you choose to retain the damaged car, the insurer calculates its salvage value and deducts this amount from your final claim payout. You keep the wreck and get the remaining amount to fix it or sell it.
IDV vs Salvage in Car Insurance
In car insurance, IDV and salvage value are two different stages and values of the insured car. Have a look at how both differ:
| IDV |
Salvage Value |
| The insured value of the car for applicable total-loss/CTL claims |
The residual value of the damaged vehicle |
| Determined when the policy is issued |
Assessed after the car suffers the insured damage |
| The car's value for insurance purposes before the loss |
The value that remains in the damaged car |
| Used as the basis for applicable total-loss/CTL settlement |
May be deducted when the policyholder keeps the damaged car |
Can You Dispute the Salvage Value in Car Insurance?
If you believe the salvage value assessed during the car insurance claim process is too high, you may ask the insurer how it was calculated. For example, if the insurer assesses salvage at ₹1.5 lakh but you have credible evidence that the damaged car can only fetch around ₹1 lakh, you can submit the relevant quotes or supporting information for reconsideration. The final assessment will depend on the insurer's evaluation, the available evidence and the policy terms.
How to Reduce Salvage Impact on a Car Insurance Claim?
Besides surrendering your damaged car and challenging the salvage valuation, you can opt for some add-ons in car insurance to reduce the impact of salvage on total loss claim payouts:
- Zero Depreciation Cover: The zero dep cover eliminates depreciation deductions on replaced parts, which helps increase your partial damage claim payouts. While it is not directly for salvage deduction, it keeps your overall repair costs low.
- Return to Invoice (RTI) Cover: In a total loss claim, RTI in car insurance pays the original invoice value of your car (subject to policy terms) instead of the depreciated IDV. This can help significantly reduce the financial gap caused by salvage deductions.
