Getting into a car accident can be devastating on so many levels. Not only do you go through a tremendous amount of physical and mental trauma, but you also have to deal with the damage done to your vehicle.

If your car has suffered major damage in the accident, what do you do? Do you get it fixed? Do you buy a new one? It’s most likely that your car insurance company will make that decision for you. They will decide whether your car should be repaired or be declared a total loss. Disputing these decisions or assessing if they’re right will require a certain extent of familiarity with the claims process on your part.

What is total loss?

A vehicle is declared a ‘total loss’ by the insurance company when the cost of repairing it to its pre-damaged condition exceeds a certain percentage of your car’s value. This percentage varies based on the insurance company. Some companies will total your vehicle if the damages exceed 80% of its pre-accident value, while most insurance companies in UAE set the bar at 50%.

How is it calculated?

Calculating the total loss and the Actual Cash Value depends on a wide range of factors. Here’s how the process works:

  • A company appointed ‘adjuster’ inspects the physical and mechanical condition of your car and determines whether it should be repaired and the costs involved.
  • Post inspection, the ‘Actual Cash Value’ of the car is calculated by taking into consideration factors, such as:
    • Depreciation value
    • Year of manufacture
    • Make and model
    • Mileage
    • Wear and tear
    • Demand for the vehicle
  • The value determined is the assumed market value of the car in its pre-accident state.
  • If the extent of damage exceeds 50% (in most cases) of this value, then a total loss is declared.

[Related: How Vehicle Value Impacts Your Insurance Premium]

Since the ACV is dependent on a range of factors, this means that the extent of damage that constitutes total loss for one case, may not be the same for another. For example, an insurance company may declare a 10-year old car a total loss after it suffers minor damage. This is because the car’s actual cash value may already be low and repairs will come in at a hefty cost. On the other hand, major damage to a brand new vehicle may not result in a total loss.

What happens after a total loss declaration?

Once a vehicle is classified as a total loss, the insured value declared initially at the time the contract was signed will form the basis for calculating the indemnity for the loss. This is subject to depreciation at a fixed percentage of 20% per annum as stated in the policy. If your vehicle is less than a year old, then this value shall be calculated on a pro rata basis, and the company will pay for a replacement model or purchase value of an equivalent vehicle.

A proper insurance policy with collision coverage will help you cushion the loss that arises when your vehicle is totaled and minimize the financial burden on acquiring a new vehicle. So make sure you compare car insurance plans and choose the right one for your needs.

[Related: Check the Car Value in Your Car Insurance Policy]