When Is A Car Considered Totaled?

When a vehicle is damaged in an accident, insurance companies will decide whether to total it, or declare it a total loss. This means that the cost of repairing the vehicle exceeds (or is close to exceeding) its market value. Each US state has its own threshold for declaring a vehicle a total loss, but insurance companies may use a lower threshold.

Repair costs vs. car value

When it comes to deciding whether to total a vehicle, insurance companies consider whether the cost of repairing the car exceeds the vehicle's value, also known as its "book value" or "actual cash value" (ACV). This value is determined by taking into account factors such as the car's make, model, and year, mileage, condition, and sales price of similar cars in the area. The calculation also includes depreciation, so the ACV will be less than what was paid for the vehicle originally.

Insurance adjusters are responsible for determining whether a car is totaled. They will inspect the vehicle and estimate the cost of repairs, taking into account both the cost of parts and labour, as well as the salvage value (the resale value of parts and metal). If the cost of repairs and salvage value is more than the ACV, the insurance company will likely declare the car a total loss.

Each state in the US has its own threshold for declaring a vehicle a total loss, but insurance carriers may choose to use a lower threshold. Some states use a simple percentage threshold, where the car is declared totaled if the cost of repairs is higher than a set percentage of the car's ACV. For example, in Florida, a car is declared totaled if the cost of repairs is 80% or more of the ACV. Other states use the standard total loss formula (TLF), which means that if the sum of the car's repair costs and salvage value is greater than its ACV, it is considered a total loss.

If a car is deemed a total loss, the insurance company will reimburse the owner for the ACV of the vehicle, minus any deductible. This amount can be used to pay off any remaining loan or lease balance on the vehicle. However, if the ACV is less than the amount still owed on the car, the owner will be responsible for paying the remaining balance unless they have GAP insurance, which covers the difference.

It is important to note that standard auto policies will typically not pay for repairs if the car is considered a total loss. In this case, it is up to the insurer to decide whether to pay for repairing the car or to declare it a total loss and pay the owner its book value. Owners may be able to argue for a higher settlement amount by submitting evidence such as mileage records, service history, and affidavits from mechanics to show that their car was worth more than a typical car of its make and model.

Calculating actual cash value

When a car is involved in an accident, the insurance company will decide whether to total the vehicle based on its worth and the extent of the damage. If the vehicle's repair cost exceeds a certain percentage of its actual cash value (ACV), the insurer will declare it a total loss.

The ACV of a car is its pre-collision value as calculated by the insurance company. This is the amount the insurance company will pay if the car is stolen or totalled after subtracting your deductible. The ACV is the current market value of the car minus depreciation. Depreciation is the loss of value since the car was purchased, and it is determined based on multiple factors, including mileage, wear and tear, and accident history.

To calculate the ACV, insurance companies use either the total loss threshold or the total loss formula (TLF). The total loss threshold is when a car is declared a total loss when the cost of repair is more than the state's set percentage of the car's ACV. Most states that use this formula set the percentage between 70% and 80%. For example, in Alabama, the state's set percentage is 75%, so if a vehicle is worth $10,000, the insurer must declare it a total loss if the damage costs $7,500 or more.

The total loss formula is used in states that don't set a threshold. In these states, a car is declared a total loss when the cost of repair plus the salvage value is greater than or equal to the ACV. For example, if a vehicle's fair market value is $15,000 and the salvage value is $4,000, the insurance company will total the car if the estimated repairs exceed $11,000.

Most insurance companies use proprietary formulas or third-party vendors to calculate a vehicle's ACV, so no two insurers will likely give you the same figure. If you disagree with the insurance company's valuation, you may be able to negotiate or appeal their decision. You will need to provide detailed records of your car's maintenance and prove that your car's value is higher than the insurance company's determination.

Total loss criteria

The criteria for a total loss vary by state, but there are two common methods to determine a total loss:

Total Loss Threshold

A car is declared a total loss when the cost of repair is more than the state's set percentage of the car's actual cash value (ACV). Most states that use a total loss formula set the percentage between 70% and 80%. For example, in Alabama, the state's set percentage is 75%. So, if a vehicle is worth $10,000, the insurer must declare it a total loss if the damage costs $7,500 or more.

Total Loss Formula (TLF)

In states that don't set a threshold, a car insurance company might use a formula like this: Cost of Repair + Salvage Value ≥ Actual Cash Value. If the cost of repair and salvage value is more than the ACV, a vehicle will be declared a total loss. For example, if a vehicle's fair market value is $15,000 and the insurance company gets a salvage value of $4,000, subtracting $4,000 from $15,000 leaves $11,000. In this case, if the estimated repairs exceed $11,000, the insurance company would total the car.

Other Factors

In addition to the cost of repairs, the salvage value, and the ACV, insurance companies consider other factors when determining whether to total a vehicle. These factors include:

• The nature and extent of the damage
• The vehicle's age
• The brand, model, and trim level
• The recoverable costs (how much the insurer can get for selling the vehicle to a junkyard)

Salvage value

When an insurance company declares a vehicle a total loss, they will pay the owner the vehicle's actual cash value (ACV) in the form of a check. The ACV is calculated by taking into account the vehicle's make, model, and year, the sales price of similar cars in the area, the car's pre-loss condition, and its salvage value.

The salvage value of a vehicle is calculated by considering the resale value of its parts and metal against the cost to repair damages. The salvage value is the worth of a vehicle in its damaged state. A vehicle with a salvage title has been declared a total loss by an insurance company and given a salvage branding on its title.

Some states allow for "owner-retained salvage", where the owner of a total loss vehicle can choose to keep the vehicle, which will then get a salvage title. If the owner wants to make the vehicle legally roadworthy again, they will need to follow their state's guidelines for repairs and inspections. This typically involves repairing and restoring the vehicle, followed by a state-approved inspection to confirm that the vehicle meets the state's safety requirements. If the vehicle passes the inspection, a "rebuilt title" will be issued. However, it may be difficult to find an insurance company that will insure a car with a rebuilt title, as these vehicles are considered high-risk.

The amount received for a salvage vehicle will depend on where it is sold. Some buyers will value the vehicle based on its weight in scrap metal, while others will see value in it as a collector's piece that just needs some repairs. Dealerships, private buyers, junkyards, and online platforms are some options for selling a salvage vehicle.

Deductibles

When a car is damaged in an accident, the owner must pay a deductible before their insurance company will cover the remaining cost of the repairs. A deductible is an amount of money that the owner pays towards repairs before their insurance covers the rest. For example, if a car is damaged and the cost of the repairs is $3000, and the owner has a deductible of $500, they will pay $500 towards the repair, and their insurance company will pay the remaining $2500.

The amount of a deductible is chosen by the owner when they set up their car insurance policy. Deductibles typically range from $100 to $2000, with the most common choice being $500. A higher deductible results in a lower insurance rate, and a lower deductible results in a higher insurance rate. For example, if an owner has a $500 deductible and receives $4500 from their insurance company for a totalled car worth $5000, they will receive $4000.

It is important to choose a deductible that is affordable. If an owner cannot cover the cost of their deductible, they will be unable to get their car fixed. When choosing a deductible, an owner should consider their income, household budget, personal savings, and available credit.

Frequently asked questions