When Accidents Happen: Understanding Total Loss Claims In Auto Insurance

A vehicle is considered a total loss by insurance companies when the cost of repairing it is greater than its actual cash value (ACV). This means that the cost of repairing the damage caused by an accident exceeds the car's market value. The specific percentage of the car's value that repair costs must exceed to be declared a total loss varies by state and insurance company. For example, in New York State, a car is considered a total loss if the repairs total more than 75% of the vehicle's current value, whereas in Texas, the same car would only be a total loss if the cost to fix it is 100% of its value or more.

The cost of repairs vs. the car's value

When a car is damaged in an accident, the cost of repairs versus the car's value determines whether an insurance company declares it a total loss. This is usually the case when the cost of repairs exceeds the car's value. This is known as the total loss threshold (TLT).

The TLT varies from state to state, with some states having a set percentage, typically around 80%, but it can range from 51% to 80%. For example, in Oklahoma, a vehicle valued at $4,800 would be considered a total loss if the repairs cost at least $2,880 (60%). In contrast, in Colorado, the same vehicle would need at least $4,800 worth of damage to be declared a total loss.

Some states use the total loss formula (TLF), where the car is considered a total loss if the sum of the repair costs plus the salvage value of the car exceeds the car's value. For instance, if a car has a fair market value of $15,000 and a salvage value of $4,000, the insurance company would declare it a total loss if the estimated repairs exceed $11,000.

Insurance companies calculate the value of a vehicle using various factors, including its year, make, model, mileage, physical wear and tear, and damage caused in the accident. They use their own software to make these calculations, but policyholders can also estimate their car's value using resources like the Kelley Blue Book or by checking online listings for similar vehicles.

When determining whether to repair or total a vehicle, insurance companies consider the vehicle's age and condition. Newer vehicles in good condition are more likely to be repaired, while older vehicles with high mileage may be deemed a total loss. Additionally, insurance companies may consider the safety of the vehicle even after repairs are made.

In conclusion, the determination of a total loss vehicle depends on a comparison between the cost of repairs and the value of the vehicle, with insurance companies using different methods and factors to make this assessment.

Total loss formula

The total loss formula (TLF) is one of two methods used by insurance companies to determine whether a vehicle is a total loss. The other method is the total loss threshold (TLT).

The TLF is calculated as follows:

Cost of Repairs + Salvage Value ≥ Actual Cash Value (ACV)

In other words, the TLF is the sum of the cost of repairing the vehicle and its salvage value (the amount the insurance company can get for selling the vehicle to a junk or salvage yard). If this value is more than the ACV, the insurance company will deem the vehicle a total loss.

The ACV is the vehicle's fair market value or book value at the time of the crash. It is calculated by subtracting depreciation from the cost to replace the car. Factors like mileage, condition, and market demand can influence depreciation.

The TLF is used in states that do not set a threshold for determining a total loss. In states that use a threshold, if the damage to a vehicle exceeds a certain percentage of the car's ACV, it is deemed a total loss. This percentage varies by state, typically ranging from 60% to 100%.

Actual cash value

When a car is damaged in an accident, the cost of repairing it is compared to its ACV to determine if it is a total loss. If the repair costs exceed the ACV, then the car is considered a total loss. The threshold for "totaling" a vehicle varies by state and insurer, but it generally falls between 51% and 80% of the car's ACV. Some states use a “total loss threshold” (TLT), where damage only needs to exceed a certain percentage of the car's value to be declared a total loss. Other states use the “total loss formula” (TLF), which takes into account the sum of the repair costs plus the salvage value of the car.

If a car is determined to be a total loss, the insurance company will issue a payout to the owner or lienholder for the car's ACV, minus any applicable deductible. This payout may not be enough to cover the remaining balance on a car loan or lease, in which case gap insurance can help cover the difference.

Gap insurance

To qualify for gap insurance, you must have comprehensive and collision coverage on your policy. You can keep gap insurance for the duration of your policy. However, once you owe less than what the car is worth, you can drop the insurance.

Keeping a totalled car

If you wish to keep your totalled car, you have the right to do so in most states. However, you will receive a lower payout from your insurance company. They will deduct the salvage value from the total settlement amount. The car then becomes your responsibility to repair, and you will need to obtain a salvage title to continue operating or selling it. Keeping a totalled car can be an option if you have sentimental value attached to the vehicle or if you believe it is financially beneficial.

It's important to note that insuring a totalled car may be challenging and expensive. Some insurance companies may not accept a car with a branded title, indicating that it is a salvaged vehicle. Additionally, repairing a totalled car can be costly, and safety should be a primary concern. Before deciding to keep your totalled car, carefully consider the expenses of repairs and the difficulty of obtaining insurance.

To keep a totalled car, follow these steps:

• Contact your insurance company and inform them of your decision to keep the vehicle.
• The insurance company will deduct the salvage value from your payout.
• Arrange for repairs to be made to the vehicle. Ensure that you are complying with all local regulations regarding the repair process.
• Obtain a salvage title for the vehicle by applying to the relevant state department.
• Once you have the salvage title, you can continue to use or sell the vehicle as desired.

It's important to note that each state has different rules regarding keeping a totalled car, so be sure to research your local regulations. Additionally, if you have a loan or lease on the vehicle, there may be additional steps and requirements to fulfil.

Frequently asked questions