Understanding Total Loss in Two-Wheeler Insurance and What It Means for You

Understanding Total Loss in Two-Wheeler Insurance and What It Means for You

Insurance is a mandatory requirement thereby requiring all vehicle owners to buy one. But it is often regarded as a complicated decision to make considering the various jargons a policy involves. Terms like Insured Declared Value (IDV), No Claim Bonus, Total Loss can be daunting, but not when broken down into simple understandable words. If you are overwhelmed by these heavy-weight jargons easily, you have come to the right place where one of the crucial jargons, total loss, is explained in detail. 

What is total loss?

Total loss is a concept in bike insurance where the insurance company compensates the policyholder in the event of the vehicle is damage. The damage is of such intensity that the cost of its repairs exceeds the cost of the vehicle’s worth. Such total loss occurs in two situations – one, theft of the bike and second, in the event of a severe accident. The damage of such severity that the repair costs in the latter case exceed 75% of its IDV. Thus, the insurance company pays the entire amount of IDV as compensation. 

Extending the concept of total loss is constructive total loss wherein the repairs are more than 100% of its current market. Similar to total loss, constructive total also pays IDV in the event of such damages beyond the current market value. * Standard T&C Apply

How to arrive at the amount of total loss?

In situations of total loss, the insurance company pays the amount of IDV as the insurance claim. Whether your vehicle is brand new or bought a few year ago, the insurance company pays compensation equal to the amount of IDV. Such IDV is decided using a pre-defined formula that reduces the depreciation from the ex-showroom price of the vehicle and is also used in determining your bike insurance price. The rate of depreciation is decided by the regulator, Insurance Regulatory and Development Authority of India (IRDAI). However, it is prescribed only for vehicles up to five years of age. For vehicles older than that, the amount of IDV is mutually decided between the insurance company and policyholder. The table below explains the how depreciation is computed for arriving at IDV.

Age of the vehicle Depreciation for determining IDV
Not exceeding 6 months 5%
Exceeding 6 months but not exceeding 1 year 15%
Exceeding 1 year but not exceeding 2 years  20%
Exceeding 2 years but not exceeding 3 years  30%
Exceeding 3 years but not exceeding 4 years  40%
Exceeding 4 years but not exceeding 5 years  50%

You can visit the official website of IRDAI for further details.

What are the ways to get maximum compensation for events that count as a total loss?

In the event of a total loss, the insurance company pays the IDV. This amount of IDV is reduced by the depreciation on your bike.

Thus, when you buy bike insurance online, you must carefully consider the amount of IDV as it is a critical factor in determining the compensation that shall be paid in events that constitute total loss and constructive total loss. Also keep in mind that insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.