What is a constructive loss in car insurance?

A quality car insurance policy offers you protection against a number of unfortunate events. It will cover damages occurring due to accidents, floods, riots, and earthquakes among many other natural & man-made calamities. This ensures that you have complete peace of mind every time you get behind the wheel of your vehicle.

However, besides damages, a comprehensive car insurance policy also covers you against the constructive loss of your vehicle. Not sure what this means? Worry not! This article will tell you everything you need to know about the constructive loss in car insurance and how to maximize your compensation in case of such a claim.

Constructive loss is different from total loss.

To understand what constructive loss is, we first need to understand what total loss is. Many policyholders assume that they are the same thing. However, they are both very different circumstances and should not be confused with each other. In car insurance, a vehicle is declared a total loss it is damaged beyond repair.

So what is constructive loss then?

A constructive loss refers to a situation wherein the repair cost of your vehicle exceeds 75% of its Insurer Declared Value (IDV). What is IDV you ask? Well, it is nothing but the ex-showroom price of your vehicle minus the applicable rate of in depreciation based on the age of your vehicle.

Okay, so what happens in case of a constructive loss?

In case of a constructive loss, the ownership of the vehicle is transferred to the insurance company. The policyholder will also have to hand over the keys and the vehicle documents. After this, the insurance company will provide the policyholder with the IDV of the vehicle as compensation. Once the claim has been settled, the coverage of plan comes to an end and the policyholder will not have to make any further premium payments. Do note that the deductible of the plan will need to be paid in order to receive the compensation.

Want more than your IDV as compensation?

Due to deprecation, the IDV of your vehicle decreases significantly each passing year. It’s hard to believe but after just 4 years, the IDV of your car will be just 50% of its ex-showroom cost. This can lead to a very disappointing payout in case of a constructive loss.

But worry not! There is an easy way to maximize the compensation you receive in such a scenario. All you have to do is add the ‘Return to Invoice’ add-on to your car insurance policy. With this add-on, you are entitled to receive the current on-road value of your car as compensation. This amount would be significantly higher than the IDV of your vehicle, ensuring that it is much easier to replace your car after a constructive loss.

So there you have it, you should now have a better understanding of constructive loss in car insurance and how to maximize your compensation in such a situation. We hope this article has been helpful, good luck and drive safe!