Haris Ashley
When a car is involved in an accident, the insurance company will determine whether it is a total loss or totaled by assessing if the cost of repairing the damage is greater than the vehicle's value. This calculation is based on the car's pre-accident value, taking into account depreciation, age, brand, model, trim level, and recoverable costs. If the damage exceeds the insurance company's total loss criteria, they will declare the vehicle a total loss and offer the owner a settlement based on the car's actual cash value (ACV) minus the deductible. The owner then has the option to accept the settlement, appeal for a higher amount, or keep the vehicle, depending on state laws.
| Characteristics | Values |
|---|---|
| When is a car considered "totaled" or a "total loss"? | When the cost of repairing the damage exceeds the vehicle's value at the time of the crash. |
| How do insurance companies determine a total loss? | By calculating the vehicle's actual cash value (ACV) immediately before the loss occurred and estimating the amount of damage. |
| What is the actual cash value (ACV)? | The amount the vehicle was worth immediately before the loss, including depreciation. |
| What factors do insurance companies consider when determining the ACV? | Make, model, year, sales price of similar cars in your area, salvage value, pre-loss condition, mileage, and previous accidents. |
| What happens if my car is totaled? | The insurance company will reimburse you for the ACV of the car, minus your deductible and any other fees. |
| Can I keep a totaled vehicle? | It depends on your state's laws. If allowed, the insurance payout will be reduced by the car's salvage value. |
| What can I do with a totaled vehicle? | Keep it, sell it to a junkyard, or donate it to charity. |
What You'll Learn
How to determine if a vehicle is a total loss
A vehicle is considered a total loss when the cost of repairing it is higher than its actual value or cash value. This usually happens when a vehicle is involved in an accident, but it can also be due to a natural calamity, theft, or even failure to change the oil regularly, leading to complete engine failure.
Total Loss Threshold (TLT)
According to the TLT method, a vehicle is deemed a total loss if the damage exceeds a certain percentage of the car's actual cash value (ACV). This percentage varies across different states in the US, ranging from 60% to 100%. For example, in Alabama, a vehicle can be totalled when the damage exceeds 75% of its value.
Total Loss Formula (TLF)
The TLF method is used by around half of the states in the US. It evaluates the cost of repair and the car's salvage value. If the sum of these two costs is greater than the car's ACV, the vehicle is considered a total loss.
Calculating ACV
The ACV is calculated by subtracting depreciation from the cost to replace the car. Factors like mileage, condition, and market demand can influence depreciation. The ACV is based on wear and tear, the vehicle's age, and other factors deemed relevant by the insurer.
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Actual cash value (ACV) of a vehicle
Actual cash value (ACV) is a term used by insurance companies to determine the current market value of a vehicle. It is calculated as the amount paid for the vehicle minus depreciation. ACV is different from replacement cost, which is the cost of buying a new, similar vehicle.
When a car is totalled, the insurance company will reimburse the policyholder for the car's ACV, minus the deductible. This amount is usually less than what the owner paid for the car when they bought it, as most cars depreciate over time.
The specific factors considered when calculating ACV may vary per insurance provider, but they often include the car's mileage, make, year, model, interior, exterior and location.
ACV is used to determine how much of a payout a policyholder will receive for a totalled vehicle. It is also used to calculate insurance premiums, as insurers charge higher premiums for higher-value vehicles.
If a policyholder disagrees with the insurance company's valuation of their totalled car, they may be able to dispute it by providing evidence of similar vehicles for sale in their area, or by getting their car appraised by an independent professional.
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What to do with a total loss vehicle
If your vehicle has been declared a total loss, there are several steps you should take to settle your claim and get back on the road. Here is what to do:
File a Claim
Contact your insurer to file a claim as soon as possible. Total loss claims can take a long time to process, so it is important to act quickly. Contact your insurance company and the insurance company of any other person or entity involved in the accident.
Tow Your Car to an Approved Auto Shop
Although you can tow your car to any auto shop, towing it to an auto shop approved by the insurance adjuster handling your claim will make the claim process smoother. The shop will give your adjuster an estimate for repairs, and the adjuster will decide whether to total the car.
Get Your Paperwork Together
You will need to provide the insurance company with your car's title. If you don't have it, you can request a copy from the Department of Motor Vehicles in your state. If your car is totaled, you will probably have to sign the title over to the insurance company.
Research Your Car's Actual Cash Value (ACV)
Before you agree to an insurance payout for a totaled car, it is important to research your car's ACV. Look at auto websites, newspapers, and car dealerships in your area to see the current market value for cars like yours. You can also use online tools like Kelley Blue Book.
Review Your Car Loan
If your car is financed, you need to know how much you owe on your car loan. The insurer will pay settlement money to your lender first, and then you will receive whatever money is left over.
Decide Whether to Keep Your Totaled Car
You can usually keep your totaled car, but the insurance company will probably deduct the car's "salvage" or "junk" value—how much they might get from selling it for parts—from your car's ACV. So, your settlement check will be smaller, but you'll get to keep your car.
Think carefully about whether it makes financial sense to keep your totaled car. You'll need to have it repaired, inspected, and reinsured to get the car back on the road. Some states prevent drivers from keeping total loss vehicles, while others will require you to obtain a certificate stating that the car is salvaged.
Alternatively, you can donate your totaled car to a charitable organization in exchange for a tax deduction. Some state recycling programs list organizations willing to accept unwanted cars as charitable donations.
Negotiate with the Insurance Company
If you disagree with the insurer's valuation of your car or repair estimate, you can hire your own appraiser and mechanic, negotiate with the insurer, contact your local department of insurance, or talk to a lawyer about requesting arbitration or filing a lawsuit.
Get a Rental Car
If you have rental car reimbursement coverage as part of your car insurance policy, your insurer can help pay for rental car costs after a total loss. The coverage amount will depend on your specific policy and limits.
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How to get the most money from insurance for a total loss vehicle
If your car has been declared a total loss, you may be unsatisfied with the insurance company's offer. Here are some tips on how to get the most money from your insurance for a total loss vehicle:
Conduct Independent Research on the Vehicle's Worth
Before accepting the insurance company's offer, get an independent valuation of your vehicle. Factors such as make, model, year of manufacture, condition, and features will affect its value. You can take your vehicle to different used car yards and see what they are willing to offer. Alternatively, you can refer to reputable websites like Kelley Blue Book, NADA guides, Consumer Reports Car Value Estimator, or Edmunds to get an estimate of your car's value.
Provide Supporting Documentation
Even after conducting independent research, the insurance company may refuse to increase their offer. To improve your chances of getting a higher payout, provide relevant documents that support a higher valuation. These documents include the sticker that lists all the details of your car when it was purchased, accident reports, insurance policies, and maintenance records. Providing these documents helps establish your car's pre-accident condition and strengthens your claim.
Negotiate with the Insurance Company
Negotiating with the insurance company can be complex and frustrating, but it is a necessary step to get the most out of your insurance claim. Here are some tips for effective negotiations:
- Understand your auto insurance policy: Read through your policy to comprehend the coverage limits, exclusions, and other relevant details. Ensure you know how much you are entitled to in the event of a total loss.
- Provide documents: Keep records of all interactions with the insurance company, including emails, letters, and phone call logs. Document the details of your discussions and any promises made by the insurer.
- Be patient and persistent: Negotiations may take time, so stay persistent and don't expect an immediate resolution. It may require multiple phone calls and meetings to reach an agreement.
- Stay calm and polite: Maintaining a calm, respectful, and polite demeanor during negotiations can be an effective strategy. Losing your temper may delay the process and harm your case.
- Clearly state your intentions: Be clear about your preferred settlement amount and provide reasoning and evidence to back it up. Bring copies of the latest valuation report, an independent appraisal report, the policy document, and receipts for any aftermarket accessories.
- Speak with a manager: If you are not making progress with the insurance company's representative, request to speak with their manager, who may have more authority to make decisions.
Utilize a Third-Party Appraisal
Consider hiring an independent appraiser who is not affiliated with you or the insurance company. An unbiased appraisal can establish a fair market value for your vehicle and prove that the insurance company undervalued your total loss claim. The insurance company may improve their offer to avoid the additional time and expenses associated with a third-party appraisal.
Make a Counteroffer
Compare the insurance company's offer to the values you found during your research and through the third-party appraisal. If they are similar, you have likely received a reasonable offer. However, if you still feel that the offer is too low, decide on an appropriate counteroffer and present it to your insurance provider. Send them all the documentation and information you have compiled to support your counteroffer's credibility.
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What happens to the title of a total loss vehicle
When an insurance company declares a vehicle a "total loss," it means that the vehicle costs more to fix than to replace. This can be due to damage sustained in an accident or non-accident-related events such as flooding or vandalism. In some cases, a vehicle may be deemed a total loss if it would be unsafe to drive, even after making all the necessary repairs.
If your car is deemed a total loss, you have several options. You can agree to the insurance company's assessment and sign over the title to them. They will then pay you the fair market value or actual cash value of the car before the loss occurred, minus any deductible and fees. Alternatively, you can negotiate with the insurance company if you believe your car is worth more than what they have offered. You can also choose to keep your totalled car, but it will need to be repaired and pass an inspection before you can drive it again. In this case, you will receive a rebuilt or salvage title, and you will need to register the car with your local Department of Motor Vehicles (DMV).
It is important to note that keeping a totalled car may lead to challenges in insuring and disposing of the vehicle in the future. Additionally, the legality of driving a vehicle with a salvage title varies across different states. Therefore, it is recommended to check with your state's DMV to understand the specific requirements and regulations for total loss vehicles.
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Frequently asked questions
A vehicle is "totalled" when the cost of repairing it exceeds its value, or it is deemed unsafe to drive, even after repairs.
Insurance companies consider the vehicle's age, brand, model, trim level, and the recoverable costs. They also take into account depreciation, wear and tear, mechanical problems, cosmetic blemishes, and supply and demand in your local area.
The insurance company will reimburse you for the vehicle's actual cash value (ACV) or fair market value, minus your deductible and any other fees.
The actual cash value is the amount the insurance company determines someone would pay for the car, assuming the accident had not happened. The replacement cost is the value of replacing the vehicle with a similar make and model and does not take into account depreciation or wear and tear.
You can negotiate with the insurance company by providing documentation, such as a list of your car's features, its estimated retail value, and comparable sales for similar vehicles in your area. If you still disagree with their valuation, you can hire an independent appraiser, contact your state's insurance department, or file a lawsuit.
