All You Need to Know About Total Loss in Car Insurance

When you plan to buy a new car insurance policy, it becomes critical to understand the technical aspects so that you can use your policy judiciously. One such technical aspect is a total loss in car insurance which often becomes tricky. This article will help you understand everything you should know about the total loss in motor insurance.

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Total Loss in Car Insurance

Total loss in car insurance is declared when a vehicle is damaged to such an extent that the cost of repair is higher than the vehicle’s total IDV. Generally, the total loss is declared when the repair cost of the damaged vehicle exceeds 75% of the vehicle’s IDV. Total loss to the vehicle can take place in the following 2 situations:

1. Total loss by accident: The car is damaged beyond repair and cannot be used anymore.

2. Total loss by theft: The car is stolen and is not traceable by the authorities.

In such situations, the insurance company reimburses the existing vehicle’s IDV deducting the compulsory excess amount of the repairs.

Constructive Total Loss

In simple terms, the damage in case of constructive total loss is so high that it becomes much cheaper and smarter to buy a new vehicle instead. This is primarily because total constructive loss refers to a situation where the vehicle has been damaged beyond repair with minimal chances of restoring the car to its original shape as the cost of repair is more than the insured declared value.

Rules of Constructive Total Loss as per the Motor Vehicles Act, 1988

Section 55 of the Motor Vehicles Act, 1988 states that if a vehicle is destroyed beyond repair and comes across the situation of a constructive total loss, they are required to report the matter to their registered Regional Transport Office within 14 days from the date of the accident to declare a total loss and cancellation of the registration of the vehicle.

You May Also Read - What is Car Insurance Policy

Calculation of the Insured Declared Value

IDV is calculated by including the total value of all the accessories of the vehicle including the selling price of the vehicle as listed by the manufacturer. Finally, the total depreciation levied on the vehicle based on its age is deducted from this calculated amount. Following is the list of depreciation applicable against the age of the vehicle to calculate the insured declared value:

Age of the Vehicle

Applicable Depreciation Rate

New vehicle


Under 6 months


6 months – 1 year


1 – 2 years


2 – 3 years


3 – 4 years


4 – 5 years


Above 5 years

Mutually decided by Insured and Insurer

If you wish to estimate the insured declared value of your car, you can use the IDV calculator available at the official website of Policybazaar Insurance Brokers Private Limited.

Factors Affecting Insured Declared Value

The IDV determines the market value of your vehicle. This is the price that will be settled for you in case of a total loss to your vehicle. Hence, it becomes important to know the various underlying factors that affect the amount of the insured declared value. Such factors are highlighted below:

  • Age of the vehicle
  • Current mileage of the vehicle
  • Make, model, and variant type
  • The structural and mechanical condition of the vehicle
  • Date of registration of the vehicle
  • Cubic capacity of the engine
  • The ex-showroom price of the vehicle
  • Type of vehicle – private, commercial, or company-owned

Avoid Lower Claim Amount in Case of Total Loss

When it comes to total loss or constructive total loss, the policyholder is only compensated with the pre-decided amount of the insured declared value of the vehicle. This insured declared value keeps on decreasing as the car’s value depreciates over time, reducing the claim amount the policyholder would receive in case of total loss.

In such situations, policyholders can greatly benefit from a return to invoice add-on cover. The policyholder can opt for one at the time of renewing or purchasing motor insurance. Return to invoice add-on serves as an extremely useful cover as it strengthens an existing motor insurance policy. In the case of a total loss, return to invoice ensures that the policyholder is compensated for the total price of the car as mentioned in the invoice at the time of the purchase and not the insured declared value.

This helps reduce the gap between the total price of the car and the calculated IDV ensuring that the policyholder receives total compensation for the full value of their car and not just the depreciated insured declared value. Please note that return to invoice add-on cover is not available in the case of third-party insurance.

To conclude

While total damage to the vehicle is certainly not a situation any policyholder would want to be in, it is still important to understand its technicalities as it becomes important in case of a serious mishap. Make sure that your vehicle is insured all the time as accidents don't announce their arrival, and ensure that you drive responsibly.

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