Common myths around total loss car insurance & the truth behind them

Most car owners purchase an insurance policy, believing it will provide full protection - until an unfortunate event happens. That is exactly when confusion begins in a policyholder's mind.

One of the most misunderstood insurance subjects is total loss. You see, car owners hear stories from friends, family, and social media groups - this is the beginning of misconceptions. Thus, converting myths into facts in car owners' minds.

The thing is, total-loss claims are less common and are therefore surrounded by misinformation. But in a country like ours, where road accidents, floods, and typhoons are common and cause significant damage to cars, it is important to understand the total-loss scenario.

To help you understand, we have created this guide that discusses common myths about total loss insurance in the Philippines, along with the realities and a lot more.

Without wasting any time, let’s begin…

Total Loss scenario: Understanding the basics

Before discussing common myths around any subject, it is important first to understand the meaning and scope of Total Loss car insurance.

When is a vehicle considered a total loss?

A vehicle is considered to be a total loss when its cost of repair is equal to or greater than 75% of its insured value, or when repair is no longer practical. This usually happens after the vehicle undergoes -

• Major collision
• Fire damage
• Severe flood damage
• Theft recovery with heavy damage
• Damage due to natural disasters, such as a typhoon

Note that total loss scenarios do not always mean the car is destroyed beyond recognition. Sometimes, it also means the fixing cost is way too much.

Constructive total loss insurance

Did you know a car can still be declared a total loss (constructive), even if it's repairable? This happens when the car’s repair cost exceeds a certain percentage of the car’s insured value (often around 75%).

Actual cash value vs. market value

Every car owner, or shall we say, policyholder, should understand the difference between a car’s actual cash value and market value.

The actual cash value of an item (a car, in this case) refers to the value at the time of loss, factoring in depreciation. Meanwhile, market value is the price at which an asset can be currently bought or sold in the market.

In the world of insurance, providers usually pay based on a car’s actual cash value rather than its original purchase price.

What factors are taken into consideration while deciding the actual cash value of a vehicle? The list includes -

• Depreciation
• Wear & tear
• Age of the vehicle
• Current market condition

So, for instance, if you purchased a car three years ago, do not expect the same amount as payout during a total loss claim settlement.

Also Read: Accident on the highway? What to do while towing coverage comes into play

Why do myths around total loss insurance exist

Before diving into burning common myths about total loss, let us first discuss the reasons why misconceptions arise in the first place.

Reason #1. Misunderstanding of policy terms
Let’s be honest, most car owners don't bother to read their policy after receiving it. The reason could be any, from not considering the task important to giving up after reading terms like deductible, depreciation, exclusion clauses, etc.

If not referred to an authentic source, the policyholder might end up confused and misled.

Reason #2. Social media misinformation
Facebook and other social media groups can be helpful, but sometimes they can also be dangerous. In these cases, the chances of misinformation or stale data are high.

For example, if someone shares their old claim experience with a particular provider from 2016, and someone adds their personal views on the same, chances are, new car owners will believe it completely, even though the situation is not the same anymore.

Reason #3. Dealer vs. insurer advice
Often, new car owners completely trust the car dealer’s words more than those of an insurance agent or insurer. But that’s not always the right thing to do - you see, dealers have expertise in selling cars and not policy. Agents, on the other hand, sell policies, aid in coverage selection, and assist in policy renewal & claim.

Also Read: 7 ways the Insurance Commission keeps car insurance fair for Filipinos

Total Loss insurance: Common myths car owners assume (& the reality)

Myth #1. The insurance provider always pays the full purchase price

This one is probably the biggest myth policyholders have. In reality, however, the insurer usually pays based on the vehicle's depreciated value rather than the original purchase price.

Remember, full reimbursement is highly unlikely, and it’s also essential to understand your policy thoroughly.

Myth #2. Older cars cannot be declared a total loss

That’s not at all true. In reality, even older cars can qualify as total losses if repairs exceed the insured value.

You would be surprised to learn that older vehicles are often declared a total loss more quickly, as their market value is low and parts are expensive.

Myth #3. Flood damage is always covered

Not at all, this one is a big misconception. In fact, flood damage is only covered when your policy includes Acts of God/Nature coverage (either as part of comprehensive coverage or as an add-on). Without this particular coverage, the insurer may reject your flood damage-related claim.

Tip: If you live in flood-prone areas like Metro Manila, Bulacan, Pampanga, or Cavite, an Act of God coverage is essential.

Myth #4. Total loss means immediate full payment

Sorry to break your bubble, but that’s not true. Insurers take time to process the claim because they need to ensure everything is in place, including documentation, inspections, verification, and fraud checks.

Depending on the complexity of the claim, the payout may take a few weeks or longer. So, just be patient and make sure your paperwork is complete & error-free.

Myth #5. You cannot negotiate a claim

Not at all, a policyholder has every right to ask questions and demand clarification from the provider. In case you feel the valuation isn’t fair, you can -

• Request reassessment
• Escalate concern
• Provide market comparison

Note, negotiation doesn’t mean fighting; it means understanding the basis of computation.

Myth #6. Third-Party insurance covers total loss

This is totally false and needs to be addressed asap. You see, CTPL insurance mainly covers injuries or death involving third parties. It does not cover damage to the insured's vehicle.

So, if you need total loss protection, you first need comprehensive insurance.

Myth #7. Filing a claim is always complicated

Filing a claim is stressful and requires preparation, but it is not impossible. For a seamless process, you need to ensure the following -

• No late reporting to the provider
• Clear photos of the incident scene & damage (& from multiple angles)
• Timely, renewed & updated policy
• Complete & compiled documents

Also Read: Common roadside emergencies & coverage that will be your saviour

How insurance providers calculate total loss claims

That’s an interesting question. While every insurer may have an internal way of analysing, here are a few general factors that are usually considered -

Repair cost limit: Insurance providers usually compare the repair cost to the vehicle’s insured value. If the former exceeds the latter, a total loss is likely.

Depreciation factors: A vehicle’s cost decreases over time; this is called depreciation. Factors include - mileage, resale value, previous accidents, and maintenance history.

Policy coverage limits: Policies differ, and it is wrong to assume full coverage. Policies do have exclusions and limits that affect the payout.

Vehicle age & condition: Both matter and affect the payout. For instance, a well-maintained old car may receive better compensation compared to a neglected new model.

Also Read: Is your car insurance still worth it? 5 signs it’s time to review your policy

Essential documents for a total loss claim

It is a fact that proper preparation makes every process quick, and the same is true for a total loss claim. Here’s all that you’ll need -

Police report: This is a must, especially if your car was involved in an accident, theft, or any other incident that caused major damage. You can acquire this by calling the local authorities asap after the incident and asking for it. This report in your claim application will support your words.

Vehicle OR/CR: You will need to prove vehicle ownership at the time of applying for a claim, so carry the original and copies along with you.

Claim form: While filing a claim, you are required to complete the form with all the details. Make sure to be correct and truthful.

Photos: Photos of the incident/accident, the surroundings, damage, etc., serve as strong evidence for your provider. Make sure to take clear pics from multiple angles.

Loan clearance: If your car is under bank finance, you’ll usually be required to submit lender clearance before settlement.

Also Read: Mistakes car owners make with add-ons: 7 costly errors that must be avoided

How to avoid claim rejection

Here’s how you can avoid insurance claim rejection -

Read your policy carefully: The experience might be boring, but doing so will save you from major headaches later.

Declare car modifications fully: Hiding facts & changes from your provider will do no good; it will backfire. Make it a point to declare all mods, whether related to wheels, windows, the engine, tech, etc.

Avoid delay in reporting: You must report all incidents asap, as delayed reporting creates a suspension in the provider's mind.

Regular policy review & update: Make it a point to review your policy regularly; doing so will help you renew it on time and make the required updates, both of which are necessary for a smooth claim process.

Also Read: How regular car maintenance can protect your insurance claims: Let’s find out!

Tips to choose the right insurance provider

Tip 1: Compare the coverage, not just premiums

Remember, cheap insurance isn’t always the better choice. It is important to look for several factors in a policy, including its inclusions, claim process, support quality, and exclusions.

Tip 2: Ask about acts of god/nature coverage

In the Philippines, this particular coverage is optional, but highly recommended. Why? Because rain is frequent, they damage the vehicle, and this one offers smart protection.

Tip 3: Check claim reputation

At the end, it is all about claim approval and the settlement. It is therefore a good idea to ask real policyholders about their experience. Don’t just go by the agent’s word; do your own research.

Also Read: Your parking habits could be costing you—here’s how to fix them

Bottom line

If you want to make better decisions as a car owner, especially regarding insurance and disaster recovery, it is crucial to understand total loss insurance.

You see, car insurance and the decisions you take around it should never be based on assumptions. Rather, what works best is going by the facts.

We suggest you avoid waiting for the disaster to hit and damage your car, and learn how your policy works beforehand. For example, a flood, a car crash, or other situations where your car is declared a total loss are very stressful, and the only thing that can save you is -

• Reviewing your coverage
• Understanding your protection
• Asking questions

Why do we say so? Well, that's because in the real-world scenario, having a car insurance policy isn’t enough. To enjoy the benefits, you must know exactly what your policy can do. And believe us, that’s what makes all the difference.

Also Read: Recipe to choose the right insurance policy for your high-end car