Beware! Here's how total loss cars end up in used car markets

Insurance companies can settle total loss without RC cancellation in only 3 situations, however, they regularly flout this.

BHPian Voodooblaster recently shared this with other enthusiasts.

I hope the following post clarifies how total loss vehicles wind up in used car markets.

Insurance companies consider a vehicle as a total loss if the liability exceeds 75% of the IDV.

The liability amount of the insurance company is different from the repair amount. The liability amount takes into account depreciation (for normal policies). This is why we should take nill-dep policies with maximum add ons.

Example

• IDV = Rs. 10 lakh
• Repair Cost = Rs. 11 lakh
• Depreciation due to age = Rs. 4 lakh
• Insurance company liability = Rs. 7 lakh

As Rs. 7 lakh is less than 75% of Rs. 10 lakh, this won't be a total loss case.

Now consider a total loss case

• IDV = Rs. 10 lakh
• Repair cost = Rs. 12 lakh
• Depreciation = Rs. 4 lakh
• Insurance company liability on repair basis = Rs. 8 lakh

Since the repair-basis amt exceeds 75% of the IDV, the vehicle will be considered as a total loss and the insurance company has to reimburse Rs. 10 lakh.

Normally, the insurance company contacts a salvage/scrap buyer and gets value assessed on two parameters:

Case 1: With RC (the vehicle is transferred from the customer’s name to the salvage buyer’s. They usually repair and resell it.)

Case 2: Without RC (here, the RC is cancelled and the vehicle is not usable anymore)

The insurance company pays the difference between the IDV and the amount quoted by the salvage buyer. The salvage buyer pays the amount quoted to the customer. In effect, the customer gets the IDV.

Obviously, the insurance company can minimize the loss if the claim is settled with RC, as illustrated in Case 1 above.

But they are not always supposed to act as per Case 1. The regulator IRDAI insists on RC cancellation.

For RC to be cancelled, RTO officials have to physically inspect the vehicle. Normally, they insist that the part containing the chassis number is cut and destroyed.

1st difficulty

When Hypothecation/Loan dues are pending.

When there is hypothecation on the RC, the insurance amt can be paid to the bank only. Insurance can be paid only if RC is cancelled. For RC to be cancelled, hypothecation has to be cancelled first. Bank won't allow hypothecation to be cancelled without the loan amount being paid in full.

One option is that the customer pays the full amt to the bank and then gets the RC and hypothecation cancelled (the process takes at least 4 months in Kerala).

2nd difficulty

The registered RTO and the place where the damaged vehicle is garaged comes under a different RTO/state.

In this case, the Home RTO has to send a letter to the RTO where the vehicle is kept, and the local RTO inspects the vehicle and sends a report to the Home RTO. Finally, Home RTO cancels the RC. We all know how Indian RTOs work and how easily this can be done.

3rd difficulty

When the damaged vehicle is in an inaccessible place (at the bottom of a gorge or lake).

Since this case is not applicable to flood-affected vehicles, I won't elaborate.

Only for these 3 difficulties, insurance companies are allowed to settle total loss without insisting on RC cancellation (though practically, they regularly flout this).

When hypothecation is pending, not everyone will have enough liquid funds available for 3 to 6 months to get the loan closed, RC cancelled and finally, get the insurance amount.

And the less said about dealing with multiple RTOs, the better. (I am not even going into multiple state cases).

This is how we find the total loss of flood vehicles (which look alright post-repair even to trained eyes) in the used car market.

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