How an Auto Insurance Company Decides If Your Vehicle is a Total Loss or No

woman on cell phone calling insurance company while looking at her crashed blue car.

When you get into an accident that seems relatively minor, you may end up surprised when your insurance company declares your vehicle totaled. Also known as declaring a total loss, this decision relies on different information than you might expect. Understanding the total loss formula will give you some insight into what might happen the next time an accident damages your vehicle.

The Total Loss Formula

As with most other insurance decisions, the adjuster handling your case uses a formula to determine if the car is repairable or a total loss. Even minor car repairs are expensive, so older cars with lower values are often less expensive to replace than repair. A repaired vehicle often doesn’t function quite the same or offer the same safety benefits either.

By declaring a total loss, the insurance company can reimburse you with the money to buy a replacement vehicle rather than spending more to cover the repairs. When the car insurance company declares a vehicle as totaled, they usually must pay you its fair market value on the day of the accident. Remember, this is the car’s depreciated cash value at the time of the loss.

What Happens to Totaled Cars?

You can’t keep a car that the car insurance company declares as a total loss. In exchange for the reimbursement of its value, the insurance company becomes the legal owner of the damaged vehicle. They sell these cars to salvage yards to recoup a little of their cost.

Salvage yards generally break these cars down into salable parts and recycle the rest, but cars with limited damage may undergo repairs and end up resold as running vehicles again. This means you may see your old totaled car driving around again one day, but it’s highly unlikely.

Can I Dispute a Declaration of Total Loss?

When you get into a minor collision but have a car with a very low market value, even a badly dented bumper could tip your car into a total loss. If you want to keep your vehicle, you can try disputing the declaration.

Hire a private vehicle appraiser to make their own assessment of your vehicle’s condition and value to back up your claim. If the auto insurance company disagrees, you can argue the case in litigation, but must prove the vehicle costs less to repair than to replace to win the claim.

Getting compensated an adequate value of a totaled car should help you find a reasonable replacement. If you’re concerned, talk to your auto insurance company about how they handle declarations of total loss before you get into an accident.

FAQ’s About How an Auto Insurance Company Decides If Your Vehicle is a Total Loss or No

What is considered a total loss for a vehicle by an insurance company?

A vehicle is typically considered a total loss if the cost of repairs approaches or exceeds the actual cash value (ACV) of the vehicle. Insurance companies have different thresholds, but generally, if repair costs are around 70-75% of the vehicle’s ACV, it may be deemed a total loss.

How does an auto insurance company determine the actual cash value (ACV) of a vehicle?

The ACV of a vehicle is determined by assessing its pre-accident value, taking into account factors such as make, model, age, mileage, condition, and local market trends. Insurance companies often use software or databases to compare your vehicle with similar ones in the market.

Can I dispute the total loss decision made by my insurance company?

Yes, you can dispute a total loss decision. You can provide additional information or evidence, such as independent appraisals or documentation of enhancements that might increase the value of your vehicle, to challenge the insurer’s valuation.

What happens if I still owe money on a vehicle that’s declared a total loss?

If your vehicle is declared a total loss and you owe more on your loan or lease than the insurance payout, you are responsible for paying the difference unless you have gap insurance, which covers the shortfall between the ACV and your remaining balance.

Is it possible to keep my car if it’s declared a total loss?

In some cases, you may be able to retain a totaled vehicle by accepting a lower payout from the insurance company and obtaining a salvage title. However, there are legal and safety implications, and the vehicle will need to be repaired and pass a safety inspection before it can be driven again.

What is a salvage title, and how does it affect my totaled vehicle?

A salvage title is a legal document that indicates a vehicle has been declared a total loss by an insurance company. It significantly reduces the vehicle’s value and can make it difficult to insure, finance, or sell in the future.

How long does it take for an insurance company to decide if a vehicle is a total loss?

The timeline can vary depending on the insurance company and the complexity of the claim, but typically it takes between a few days to a couple of weeks after the vehicle has been assessed for the insurance company to determine if it’s a total loss. This process includes inspection, valuation, and sometimes negotiation with the policyholder.

Will my auto insurance rates go up if my vehicle is declared a total loss?

After a total loss claim, your insurance rates may increase, especially if you were at fault for the accident. The rate hike will depend on your insurance provider’s policies, your driving history, and the details of the current claim.

What should I do immediately after my vehicle is declared a total loss?

Once your vehicle is declared a total loss, you should remove all personal belongings, license plates, and cancel your registration. You’ll also need to discuss the settlement options with your insurance company and complete any necessary paperwork.

How can I avoid owing money on a totaled vehicle in the future?

To avoid owing money on a totaled vehicle, consider purchasing gap insurance, especially if you lease or finance your vehicle. Additionally, keeping your loan terms short and making a significant down payment can reduce the likelihood of being underwater on your loan.

Timeframe for acquiring a new car after total loss determination

When the insurance company confirms that our vehicle is a total loss, we can start the process of acquiring a new car immediately. However, the timing depends on how swiftly we settle the total loss claim with the insurer. Here’s a breakdown:

      • Claim Settlement: We need to agree on the payout amount that reflects the actual cash value (ACV) of our car just before the damage occurred.
      • Paperwork and Payment: After settlement, the insurer will need time to process the paperwork and issue the payment.
      • Financial Arrangements: If we’re financing or leasing and there’s a balance owed after the insurance payout, we’ll need to address this before committing to a new vehicle.

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