What is Total Loss? How is it calculated? 

April 8, 2022

Let’s face it. Accidents can be terrifying. You go through a tremendous amount of stress physically and mentally, but you also have to deal with the damage done to your car. 

If your car has been damaged severely, what do you do? Do you get it repaired? Or do you buy a new one? This is a call your insurer can help you make. After assessing the condition of your car, the insurance company will decide whether the car can be repaired or not. 

Let’s look at what determines your vehicle as a total loss to understand this concept better. What happens after that, exactly? Here’s what some of this  terminology means and how it affects your vehicle’s insurance coverage.

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Total Loss 

When the cost of restoring a vehicle to its pre-damaged state surpasses a specific percentage of the vehicle’s worth, the insurance company declares it a “Total Loss.” According to the insurance company, this proportion varies. Some firms will declare your car totaled if the damages surpass 80% of its pre-accident worth, but most insurance providers in the UAE put the limit at 50%.

Calculating it

The Total Loss and the Actual Cash Value are calculated using a variety of parameters. Here is how it works:

  • An ‘adjuster’ hired by the firm inspects your car’s physical and mechanical condition and evaluates if it needs to be fixed and how much it will cost.
  • Following the examination, the car’s ‘Actual Cash Value’ is estimated by taking into account criteria such as:
    • Value of depreciation
    • Year of production
    • Model and make
    • Mileage
    • Wear and tear 
    • Current demand for the car 
  • The estimated market value of the automobile in its pre-accident form was used to determine the value.
  • A Total Loss is reported when the extent of damage surpasses 50% of the value (in most circumstances).

Because various variables influence the ACV, the amount of damage that defines total loss in one situation may differ from that in another. For example, if a 10-year-old car has minor damages, an insurance company may label it a total loss. The car’s actual cash value is likely to be low, and repairs will be expensive. Significant damage to a brand new car, on the other hand, may not result in a Total Loss.

If the car has been declared a Total Loss

Once a vehicle has been declared a Total Loss, the insured value reported when the contract was signed will be used to calculate the loss indemnity. As indicated in the policy, this is subject to depreciation at a predetermined rate of 20% each year. If your car is less than a year old, the firm will determine its worth on a pro-rata basis and pay for a replacement model or the purchase price of a comparable vehicle.

If your car is not declared as a Total Loss and is repairable, the cost of repairing it will depend on the deductible. 

Remember, having the best car insurance in Dubai with collision coverage will make it easier for you to cope with the financial loss when your vehicle is deemed a Total Loss by the insurance company. Furthermore, automobile insurance UAE assists policyholders in lowering the financial strain of purchasing a new car. Every car owner should get the best car insurance coverage for their car to get the most out of it in times of need.

Keep your car safe during unprecedented accident, get a quote here.

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