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Car Insurance Total Loss of Vehicle – A Guide

Written by Sahar

Motor accidents can be fatal, and dangerous. Vehicles sometimes go through unrepairable damage. Car insurance for a total loss of vehicles comes to play in this scenario. But what does it really mean?

Total loss is when the vehicle is so damaged that repairing it would cost more than the value of the vehicle. It is also employed when cars are damaged due to natural disasters, or stolen and not recovered until after the car has been replaced.

Unfortunately, it isn’t you who decides whether the car is meant for the salvage yard. Motor insurance providers decide if the car should be repaired or declared a total loss. The process to start this is very much like a regular claim. To make a claim you must:

  1. Contact the police for a copy of the police report on your accident
  2. Inform your insurance provider
  3. Attach copies of your documents (driving license, Emirates ID)
  4. Attach any evidence you have collected
  5. Include the total cost of repair

The insurance provider will then calculate the repair costs against the actual value of the vehicle listed on the policy. Some providers declare total-loss if the damage is beyond 80% of the value. Some cap it off at 50%.

Car Insurance Total Loss Calculator

Car insurance for total-loss of a vehicle is calculated keeping certain factors in mind. First, the provider assigns an adjuster to inspect your vehicle. It is the adjuster’s job to calculate the Actual Cash Value of the vehicle. This is decided by:

  1. Depreciation value
  2. The year the car was manufactured
  3. Make and model of vehicle
  4. Mileage on vehicle
  5. Wear and tear sustained
  6. Market demand for vehicle

The process for calculating total loss then becomes simple:

  1. The ACV calculated is assumed to be the market value of the vehicle in its pre-accident state
  2. If the damage and its repair exceed 50% of the ACV it is declared a total loss

However, there is a glimmer of hope. The factors calculating ACV are unique to each individual case. Therefore, it is possible to get a better result. There have been cases where cars have been declared a total loss after minor damage. This was because they were a decade old, and no longer in demand. Similarly, major damage to a brand new vehicle wouldn’t be considered a loss.

car insurance total loss

What to Expect After

What comes after can seem a bit daunting. It involves a lot of math, and insurance jargon. But no worries, we can simplify it for you. A term that will crop up is indemnity. It sounds dangerous but it’s not. It refers to the sum of money paid as compensation for your loss. Therefore, indemnity is a good thing that you should keep bringing up.

Now, the insurance provider will take the insured value at the of signing the policy as the basis for calculating indemnity. However, this is subject to 20% deprecation per anum. Yes, this sounds bad. No, it isn’t illegal. Let us explain.

How much indemnity you get depends on how long you’ve had the policy. If your policy is more than five years old you can expect a lower indemnity. However, if you face total loss damage within a year of the policy you can get a better deal. In fact, the insurance company will even pay for a replacement vehicle in the same value.

However, if you buy a proper policy with collision coverage you’re chances are better. Higher coverage for collision helps you cushion the financial blow of total loss. Therefore, it is highly important to read your policy thoroughly before signing. Ask questions, no matter how uncomfortable. Do your research. Conduct online comparisons. Don’t settle for a policy.

Incidentally, switching policies ever so often is also recommended. Online markets are full of car insurance policies up for the taking. Furthermore, there are constant deals and offers available to take advantage of. Don’t stay committed to a policy for too long. So, keep switching it up for greater advantage to your vehicle.

    Originally published Feb 09, 2020 14:47:51 PM, updated May 31, 2021

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