Your MTPL insurance policy may not cover all the costs of repairing your car after an accident, especially if your car is ‘old’ and subject to depreciation. Find out how the amount of damage is calculated in the event of an accident

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Many car owners take out motor third party liability insurance, believing that in the event of an accident, the insurance company will fully cover the costs of restoring the car. However, in practice, the compensation may differ significantly from the actual repair costs. With reference to Finance.ua, we will tell you how MTPL payments are formed and how much you can really expect to receive after an accident.

It is worth noting that a motor third party liability insurance policy is mandatory for all vehicles registered in Ukraine. On Visit Ukraine, it takes just a few minutes to apply for this insurance. 

What compensation does MTPL offer?

During the year, you can use your MTPL policy as many times as you have had an insured event.

The amounts of compensation in the event of an accident are set by Ukrainian law. They are as follows:

▪️ 130,000 UAH - to cover the repair of the vehicle and the victim's property.

▪️ 260,000 UAH - to pay for transportation to hospital, treatment, and compensation for the loss of working capacity of the victim in an accident.

If there are several parties to the accident, their insurance companies jointly cover the compensation costs.

What is the wear and tear factor in CMTPL insurance?

The depreciation factor is an indicator that reflects the decrease in the value of a vehicle and its spare parts due to their ageing and use. Over time, car parts wear out, losing their original characteristics, which reduces their value. When calculating the amount of compensation, insurance companies apply this coefficient, which is why insurance payments may be significantly lower than the actual cost of restoration.

To calculate compensation for motor third-party liability insurance, insurance companies use a formula in which the depreciation factor shows the percentage of loss of value of the damaged part. For example, if the coefficient is 0.7, it means that the insurance company will cover only 30% of the cost of replacing the part.

When is the depreciation factor applied?

The depreciation factor starts to apply if your car meets one or more conditions:

▪️ Cars from the CIS countries - over 5 years old, manufactured in the countries of the former USSR.

▪️ Cars made abroad - over 7 years old.

▪️ Trucks, trailers, buses - over 3 or 4 years old, depending on the country of manufacture.

▪️ The car is actively used (the mileage exceeds the normative mileage twice) or works as a taxi.

▪️ Corrosion is visible on the body, significant repair work has been carried out.

▪️ Motorcycles older than 5 years.

▪️ If the car is older than 12 years, the wear and tear coefficient is a maximum of 0.7. The older the car and the more damage it has, the lower the compensation will be.

How is the depreciation factor calculated?

If the depreciation coefficient (Kz) is not equal to 0 or 0.7, it is calculated using the formula: Kd = 1 - Cp / Cn, where Cp is the current market sale price of an undamaged car, and Cn is the price of the same new car.

To calculate the percentage of compensation that will not be paid, multiply Cp by 100%. For example, 1 - 300,000/500,000 = 0.6*100 = 60%.

How does the depreciation factor affect compensation?

To calculate the amount of compensation for the damaged car (X), you need to know the depreciation factor (Df), the cost of repairs (A), materials (B) and the spare parts themselves (C).

If the restoration of the car, taking into account all losses of value (both the car as a whole and the wear and tear of parts) is equal to or higher than the market value of the vehicle, or the vehicle falls under the conditions for the application of the Kz, then the calculation is made according to the formula: A+B+C*(1-Kz) = X.

The example looks like this: 7000+10000+50 000*(1 - 0.7) = UAH 32,000.

At the same time, if we are talking about new vehicles (for example, cars less than 5 years old and 7 years old, produced in the CIS and other countries, respectively), the following formula is used: X = A + B + C * (1-Kz) + BP, where BP is the loss of value, the amount of which shows how much the value of the restored car has decreased compared to the market price of an undamaged vehicle. This is an indicator of ‘obsolescence’ during operation.

The size of the IR is calculated by the formula: DD = Z/100* (Cp+(A+B+C)), where Z is the loss of market value coefficient (determined by the Methodology depending on the life of the car in months, the ratio of the cost of restoration to the market value, and the ratio of the cost of repair work to the sum of the cost of replacement parts and materials).

Experts use the data from the Methodology's tables to determine the average market price of a car in each specific region, adjusting the value depending on mileage and service life, and the conditions of the car. They take into account the number of people involved in the accident, the number of injured people, the cost of transporting them from the accident site, and much more. Each specific insurance case has different rules and exceptions to them for determining the depreciation factor.

We remind you! It is not uncommon for unscrupulous drivers who have created an emergency situation on the road that has led to an accident to flee the scene. We told you what to do if the culprit left the scene of the accident and how to get insurance compensation in this case.