When Does An Insurance Company Total A Car?
Your car will be declared a total loss by your insurer if the cost to repair it plus the salvage value is greater than the current market value.
Many variables affect how insurance providers figure this total loss formula depending on your insurance company and where you live.
Let's explore those variables to gain a complete understanding of why a car is totaled, what your options are, and how you can get the best payout possible.
- When does an insurance company total a car?
- How to make a total loss claim
- What happens after your car is declared a total loss
- How you are paid for a total loss
- Understanding the deductible
- Buying back a totaled car
- Appealing your total loss settlement figure
- Finding a new insurance company
How does an insurance company determine if a car is a total loss?
Your car can be damaged in an accident (collision insurance) or from a natural event like wind, fire, or flood (comprehensive insurance). Your insurance company may apply the total loss formula to decide if the car is worth repairing.
Most states use the total loss formula which determines that your car is a total loss if the cost of repairs plus salvage value is greater than your vehicle's current market value. Let’s examine all three parts of the formula.
Calculating the cost of repairs
Back in the day, insurance companies would ask you to obtain estimates from car repair garages yourself. Today, most companies prefer to have their own claims adjuster make the estimate.
If your car is drivable, your insurance provider may ask you to bring it to the adjuster. If it's not drivable, the adjuster will come to it. To make his estimate, the adjuster will photograph the car, research the cost of the required parts, and add in the cost of labor.
The salvage value is the value of the remaining parts that are good plus the value of any metal. In most states, salvage value is what the wreck will bring at auction.
Calculating the current market value of your car
Cars depreciate with age. Totaling a new car can leave you owing more than the totaled vehicle's actual cash value because a new car depreciates when you drive it off the lot bringing a large drop in value. You can insure yourself against this by purchasing new auto security coverage.
Every year your car is worth less. Each insurance provider has its own procedure for calculating the car's actual cash value prior to being damaged.
To determine the value of the vehicle, the insurer will figure in the cars:
- Pre accident condition.
- Sales prices in your area for similar vehicles.
- Value of any add-ons or modifications.
- Value in parts and metal to salvage yard.
You can get a good idea by looking up the Kelly Blue Book value.
How to make a total loss claim
Newer cars are worth a lot of money, so the insurance provider may elect to repair a badly damaged car if the repairs are less than the cost of replacing it.
Total loss thresholds vary state by state from 60% of actual value in Oklahoma to 100% in Colorado.
If your car insurance company declares that your car is repairable, but you think it should be totaled, you can negotiate.
You'll need to present your case by writing a letter to the insurance provider supported by documentation like higher estimates for repair costs from auto repair shops.
Often you can reach an agreement, but if you can't, you can go to arbitration which will take longer and may incur the cost of an attorney, which you will have to pay for.
What happens after your car is declared a total loss
After your car is declared a total loss, you should call your finance or lease company to notify them.
Your insurance provider might ask you to fill out some paperwork and remove the license plates and your personal belongings before turning the keys over to them. The quicker you complete this, the faster you get your settlement so that you can get on with buying a new car.
The insurance provider will take the car and notify the DMV before sending the vehicle to a salvage auction where it will be sold for parts and metal.
How you are paid for a total loss
The insurance company will pay you a cash settlement after your car is totaled. The amount of your cash settlement will be the actual cash value minus your deductible and any amount you still owe the bank or finance company. The insurance company will pay them directly.
If the car is yours free of debt, you will receive the actual cash value minus your deductible. The insurance company may buy you a new car if your totaled vehicle is less than three months old.
Understanding the deductible
The deductible is the amount of loss from a comprehensive or collision claim that you must pay. It's like a copay on health insurance.
The most common deductible for both comprehension and collision insurance is $500, but you can increase or decrease this when you purchase the insurance policy.
If you want a smaller deductible, you'll have to pay higher premiums.
If you choose a larger deductible, your premiums will go down.
Buying back a totaled car
If you have an older car, the cost to repair even minor damage can be greater than the vehicle's value.
If you love your old car and you want to pay for repairs yourself, you may be able to keep it by electing to retain salvage. Inform your insurer of your decision as soon as possible because once the car goes to auction for salvage, you probably won't be able to buy it back.
Your insurer pays you the car's actual cash value after subtracting the deductible and the amount the car would've bought at the salvage yard. They also may report the vehicle's VIN to a federal database so that future buyers will know that it has been salvaged.
Appealing your total loss settlement figure
Going to court over a totaled vehicle isn't likely, but if you know how the claims process works, you'll have that option. If you are not happy with your settlement, you may be able to negotiate with the agent by explaining that you are prepared to go to arbitration.
Arbitration is usually the step before going to court. In arbitration, you and your insurance company will present your arguments to a third-party arbitrator. If the arbitrator's decision is nonbinding, you have the option of going to court if you disagree with it. If the arbitrator's decision is binding, you'll have to abide by his decision.
You don't need an attorney present during arbitration, but your insurance company will undoubtedly have one. You will have to pay for your attorney if you choose to be represented.
Choosing a new insurance company
Auto insurance rates usually go up if you have an at-fault accident or file a comprehensive claim. Here's how you can pay less for auto insurance and still get the coverage you need.
Shop around to compare rates and the many different types of discounts car insurance providers offer. Some insurance providers have more tolerance than others regarding accidents and traffic citations.
You may qualify for a discount based on:
- Where you live.
- Your driving record.
- If you're a homeowner.
- The type of car you drive and its age.
- If you bundle your insurance needs.
- The security and safety equipment you have installed in your vehicle.
Insurance providers offer many other discounts, and rates vary. The same insurance company often charges different rates depending on the area you live in. Researching this information takes a lot of time. It's faster and easier to use a free auto insurance calculator.