Alyssa Lane
A total loss vehicle insurance claim is made when a vehicle is damaged to the extent that the cost of repairing it is higher than the vehicle's value. This can occur in two scenarios: theft or an accident that renders the car unusable. In the case of theft, the car is not traceable by authorities. In the case of an accident, the car is damaged beyond repair.
When a vehicle is declared a total loss, the insurance company reimburses the owner the insured declared value (IDV) of the vehicle, minus any applicable deductibles. The IDV is calculated by subtracting the vehicle's depreciation cost from its manufacturer's listed price.
In some cases, the owner may dispute the insurer's valuation of the vehicle and request an independent appraisal. It is important to note that total loss vehicle insurance is not mandatory but can provide valuable coverage in the event of a serious accident or theft.
| Characteristics | Values |
|---|---|
| Total loss declared | When the cost of repairing the vehicle is higher than the vehicle's worth |
| Total loss scenarios | Car theft or accident damage beyond usage |
| Total loss threshold | When the total loss value reaches a specific percentage of the car's market value |
| Total loss formula | The vehicle's fair market value less its salvage value |
| Actual cash value | The vehicle's worth after considering any damage or depreciation factors |
| Payout | The insurance company will pay the actual cash value of the vehicle |
| Keeping the vehicle | Yes, but the vehicle will have a salvage title and may be difficult to insure |
What You'll Learn
Total loss by accident
A total loss accident can be anything from a disastrous collision to a minor bump, depending on the value of the vehicle. A total loss accident is usually more complicated than getting a vehicle repaired and involves a lengthier claims process.
What to do after a total loss accident
- Report the claim to the insurance company as soon as possible.
- Have the vehicle towed to your insurance company's preferred shop.
- Find your vehicle title (the paperwork that proves you're the owner). If you've lost your title, file for a lost title at the DMV.
- Check how much you owe if you have a loan on the vehicle.
- Research your vehicle's value so you can determine whether the insurance company's final payout figure is fair.
- Send all the completed paperwork to your insurance company as quickly as possible.
An insurance company decides your car is a "total loss" when the cost to repair the car is more than your car's actual cash value (ACV) at the time of the accident. If you disagree with the insurance company's valuation of your vehicle, you can dispute it.
If you were at fault for the accident, or something else happened that caused your car to be totalled, your insurance company will pay you the value of the vehicle minus the deductible. However, this will only happen if you have the right type of coverage, such as collision or comprehensive insurance. If someone else was at fault, their insurance coverage will pay out for the damages.
If your totalled car is still drivable, you might be able to keep it, depending on the law in your state. If you do keep it, you will likely receive a check from your insurer for the car's value minus its salvage value. However, vehicles in this situation typically have a salvage or branded title, which can make it challenging to get insurance for the vehicle or to sell it.
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Total loss by theft
If your vehicle is stolen, it is important to act quickly. File a police report within 24 hours of the theft and contact your insurance company to start an insurance claim. The sooner your car is reported stolen, the higher the chance of it being found. When filing a police report, you will need to provide information such as the vehicle identification number (VIN), license plate number, year, make, model, and colour of the car, the place and estimated time of the theft, any personal property inside the car, identifying marks on the car, and whether the car has a vehicle location device.
Comprehensive insurance will cover a stolen vehicle, whether or not it is found. However, the amount paid out by the insurance company will not exceed the vehicle's actual market value. If the car is not recovered, you will receive a payout up to the policy's limit. If the car is recovered, the insurance company will pay for repairs unless the repair costs are higher than the value of the car, in which case it will be considered a total loss.
If your vehicle is not recovered, your insurance company will pay out the actual cash value of the vehicle, minus depreciation and your deductible. The actual cash value is determined by calculating the average value of comparable vehicles on the market and adjusting for the condition of the stolen vehicle (mileage, rust, additional equipment, etc.).
If you owe more for your car than it is worth, consider purchasing gap insurance, which covers the difference between the car's value and the amount left on your loan. New car replacement coverage and rental car reimbursement coverage are also options to consider.
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Actual Cash Value (ACV)
ACV is different from replacement cost value. Replacement cost value is the cost of replacing an insured item with a new one of the same or similar model. It is higher than ACV. Many insurance companies offer new car replacement policies, while others offer Guaranteed Asset Protection (GAP) insurance. GAP insurance covers the difference between ACV and the remaining amount owed on a car loan.
The threshold for "totaling" a vehicle varies by state and insurer. If the damage to a vehicle exceeds a certain percentage of its ACV, the insurer will declare it a total loss. They will reimburse the policyholder for the car's ACV (minus any deductible).
If a policyholder disagrees with the insurer's valuation of their vehicle, they may be able to negotiate a higher payout. However, they will need evidence to support their claim, such as research into the value of similar vehicles in their area.
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Total Loss Threshold (TLT)
The total loss threshold is one of two methods used to determine when a car is a total loss, the other being the total loss formula (TLF). TLT is based on a simple percentage threshold, where the cost of repairs must meet or exceed a certain percentage of the car's value for it to be declared a total loss. On the other hand, TLF compares the cost of repairs plus the salvage value of the vehicle to its actual cash value (ACV). If the cost of repairs and salvage value is greater than or equal to the ACV, the car is considered a total loss.
When a car is declared a total loss, the insurance company will pay the policyholder the ACV of the vehicle, minus any deductibles. This is known as the total loss value. The total loss value is determined by assessing the mechanical and physical condition of the vehicle, as well as factors such as depreciation and market demand.
It's important to note that total loss can occur in two scenarios: car theft or an accident that damages the car beyond usage. In the case of theft, the car must be untraceable by the authorities. In the case of an accident, the damage must be severe enough that the cost of repairs exceeds the threshold set by the state or the TLF.
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Total Loss Formula (TLF)
The Total Loss Formula (TLF) is used to determine whether a vehicle is a total loss. TLF is calculated by subtracting the salvage value of a vehicle from its fair market value. If the cost of repairing a vehicle meets or exceeds the TLF figure, then it is deemed a total loss.
The exact TLF formula varies by insurance company and jurisdiction, but generally, a total loss is reached when the cost of repairing a vehicle is higher than a certain percentage of the vehicle's actual cash value (ACV). ACV is calculated by subtracting depreciation from the cost of replacing the vehicle. Factors like mileage, condition, and market demand can influence depreciation.
In the case of a total loss, the insurance company will pay the policyholder the ACV of the vehicle, minus any applicable deductibles.
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Frequently asked questions
Total loss vehicle insurance is coverage that helps pay for the cost of replacing your car after it is deemed a total loss. This usually refers to full-coverage policies, which include collision and comprehensive insurance.
A total loss is determined when the cost of repairing a vehicle is more than its actual cash value (ACV). The ACV is calculated based on factors such as the vehicle's age, mileage, condition, and the price of similar cars in the area.
If you agree with the assessment, you will need to remove your personal belongings and license plates from the vehicle and hand it over to the insurance company. If you disagree, you can negotiate with the claims adjuster and provide supporting documentation to prove that your car is worth more than what was determined.
Yes, you can choose to keep your car and refurbish it. However, the insurance company will notify the Department of Motor Vehicles (DMV) to issue a salvage title, and it may be difficult to insure the vehicle.
