)
Most car accidents involve some repair or replacement of damaged parts. But what if your vehicle is damaged beyond repair? Will the insurance company replace it or only pay the money?
In a recent accident in Mumbai, two cars were damaged beyond repair. There were reports the vehicles were replaced by the insurance company. However, the insurer subsequently denied these reports. So, what can car owners rightfully expect from their insurer if there is total damage to their vehicle due to an accident, natural calamity or theft? And, how can the owner establish total loss?
A vehicle will be considered a total or constructive total loss where the cost of repair, subject to the terms and conditions of the policy, exceeds 75 per cent of the insured declared value (IDV). In such a scenario, the company will reimburse the entire IDV to the insured, minus the compulsory excess ( Rs 1,000 for vehicles below 1,500-cc and Rs 2,000 above 1,500-cc). The IDV is arrived at after deducting depreciation (according to tariff slab) on the current ex-showroom price of the particular make and model of the vehicle at the time of insuring it.
What is IDV and how is it arrived at?
The IDV is not the real market value, but the value decided according to the guidelines of the Insurance Regulatory and Development Authority.
Schedule of depreciation
Amitabh Jain, head, customer service (motor) at ICICI Lombard General Insurance, says: "There are a few add-ons available in the market such as return to invoice (RTI) and replacement vehicle. If these are opted for by the customer, then in a total loss, the customer will be reimbursed with the invoice value of the vehicle plus the road tax or a replacement of a new vehicle of a similar make and model. These add-ons are over and above premium charges."
Insurance company officials say insurers' liability is towards whatever has been covered in the policy. In special cases, the company may tell the customer to choose another vehicle of the equivalent make or model or pay the money to the car dealer. However, it is the company's prerogative, not the customer's right. If their cars are totally damaged, most customers prefer to replace those with a higher model, in which case the company will not replace. So generally, settlement happens only to up to the IDV. The insurance company may offer a replacement vehicle if it suits the company in terms of economics.
Documents such as RC (registration copy), driving licence and FIR (first information report) are essential. Along with this, an estimated amount required for repair of the vehicle from the garage is to be provided by the owner. "The surveyor appointed by the company will verify the documents, assess the loss, and certify if the vehicle is a total loss or can be repaired," says Jain.
According to Vijay Kumar, chief technical officer at Bajaj Allianz General Insurance, customers should immediately intimate the insurance company, which will inspect the vehicle at the accident spot in whatever condition it is in. "In case of total damage, it may not even be necessary to shift the vehicle to a garage if the insurer decides not to repair the vehicle," says Kumar.
Another factor is that total loss is purely an economic decision, not a technical one. Customers often feel that in case of total damage, the vehicle cannot be brought on the road again. However, that is not necessarily so. If the manufacturer is ready to repair the vehicle and make it fit for re-use, the vehicle can be re-used.
Insurance companies could term the damage as total loss if their liability minus depreciation is more than 75 per cent of the sum insured. If the repair cost exceeds the sum insured, it does not make sense for the insurer to pay the money. In such cases, the company may term the vehicle a total loss.
Since the claim payout in case of total loss is huge, are premiums likely to rise? Jain says the policy stands cancelled after the claim is treated as total loss and there is no question of renewal of policy. The vehicle's RC has to be surrendered in RTO (regional transport office) and its registration gets cancelled. Even while selling the wreck to a buyer (maybe a scrap dealer) or, if the vehicle is totally burnt, customers must ensure the transfer of documents is conveyed to the RTO, to avoid misuse of the documents.
