Why Pay More?

Compare auto insurance quotes and save!

Total Loss Claims

If your car has been damaged to the extent that it is not practicable to repair it, or if repairing it would not be permitted by state laws, then you have a total loss claim. Insurance companies will deem a damaged car to be a total loss if any one of the following conditions are met:

  1. The repair costs would be greater than the pre-accident value of the car, minus salvage;
  2. The damage is such that the car cannot be repaired safely; or
  3. The damage is such that state regulations require the car to be declared a total loss.

The pre-accident value of your car is the actual cash value (ACV) of your car, as far as can reasonably be determined. It is not the average cash value of cars like yours, or the book value of your car, or any other amount. It is the assessed actual cash value of your car immediately before the accident, including any options you have added, but also including any pre-accident dents, scratches and other defects it may have.

How Insurance Companies Calculate Total Loss

Total Loss Claims
Key Points:

  • There are 5 main items in calculating total loss.
  • Your car’s actual cash value is the main one.
  • Your insurer will estimate your car’s actual cash value.
  • You should estimate your car’s actual cash value independently.
  • There are 6 main items to a total loss payment.
  • If your car is stolen, push for quick payment.

When assessing whether damage to a particular car is a total loss, insurers consider the following factors:

  1. The pre-accident ACV of your car;
  2. The salvage value of your car;
  3. The repair costs for your car;
  4. The likelihood of additional, hidden damage; and
  5. Any state regulations on total loss thresholds.

A likely formula used by insurers for assessing total loss is as follows. A total loss will occur if:

(Repair Costs  x  Loss Factor)  ≥  (ACV  –  Salvage)

That is, if the amount which the insurance company would have to pay to repair the car, including potential hidden damage discovered during the repair process (given by the ‘Loss Factor’), is greater than the amount which they would have to pay to you if the car was declared a total loss, then the insurance company will naturally opt for the less costly option and declare the car to be ‘totaled.’ The Loss Factors used by insurers vary considerably, but a common factor would be 1.2. That number implies that the insurer is assuming that hidden repair costs could amount to 20% of the assessed repair costs.

How Insurance Companies Determine ACVs

Insurers try to ascertain the pre-accident ACVs of cars by referencing one or more of several sources. The most prevalent sources used by insurers are the following:

After referencing one or more of these sources, insurers then adjust the indicative values obtained by the particular characteristics of your pre-accident car, such as mileage, options, condition and any pre-accident defects.

It should be noted that the use of CCC ValueScope by insurers is currently the subject of at least one class action lawsuit against certain insurers and against CCC ValueScope itself, with claims that CCC ValueScope uses unfair techniques to assess ACVs to the detriment of total-loss claimants. If you are involved in a total-loss claim, you should enquire whether your insurer uses the services of CCC ValueScope to assess ACVs.

How You Should Determine Your Car’s ACV

Never accept at face value your insurance company’s assessment of your car’s pre-accident ACV. It is in your insurance company’s interests to arrive at a lower ACV for your car than the value which would be determined independently. For that reason, it’s always best to obtain your own valuations so you can make a direct comparison with your insurer’s assessment.

Don’t wait until you receive your insurer’s assessment before obtaining your own. The most effective approach would be for you to personally visit two or three reputable car dealerships and, if possible, obtain valuations from the used car manager. Ask them to scribble their estimates of value on their letterhead, business cards or anything bearing their name. If you believe that your car was in above average condition, show them a photo or two if possible. If your car was fitted with additional options, tell them about it. And show some feeling, letting them know how much you liked and regarded your car.

Calculate the average of the valuations you receive. If possible, clip out some ads for cars which are similar to your own and which show the asking prices. Then wait for your insurance company’s assessment, and don’t show the adjuster the valuations you have obtained until you have received their offer. If that offer is higher than your average valuation, accept it and don’t show your valuations at all. If the offer is lower than your average valuation (which is more likely), then you have a strong basis for negotiating it higher.

Remember, if the adjuster will not meet the average of the valuations you have obtained, then you have the option of invoking the independent appraisal clause in your policy, and in that event you will already have evidence in support of your case to show the appraiser.

Total Loss Claim Payments

The amount of the claim payment which you should expect from your insurance company is not in fact the ACV minus the salvage value of your car. There are additional items to consider. Provided it is not greater than the limit of your coverage, your actual claim check ought to be the following:

  1. The pre-accident ACV of your car; less
  2. The salvage value of your car; less
  3. Your deductible; plus
  4. The prorated unexpired portion of your car’s license plate fee; plus
  5. The sales tax on your replacement car; plus
  6. The title fees for your replacement car.

Make sure that you receive payment for all the amounts you are entitled to. If the damage to your car was caused by another party, then you can expect to receive reimbursement for your deductible at some later date. That would occur after your insurance company has subrogated against the other party’s insurer. Subrogation is the assumption by a third party of legal rights to claim damages. In this case your insurance company takes over (subrogates) your rights to claim damages from the other party’s insurer, by reason of its payment to you of your claim. However, depending on the contributory and comparative negligence system adopted in your state, you may actually receive back less than your deductible.

If the damage to your car was caused by another party, and your state laws permit it, you could file a claim with the other party’s insurer as well as your own. You could then negotiate with each insurer and accept the higher offer for the total-loss value of your car.

If you are the titled owner of your totaled car, then you can expect to receive the claim check. If your car is leased, you can expect the claim check to be sent directly to the leasing company. If your car is financed, and your finance company is listed either on your auto insurance policy or on the title, you can expect the claim check to be sent directly to the finance company.

What Happens if Your Car is Stolen

If your car is stolen, it will be deemed a total loss provided it is not recovered. Problem is, most stolen cars are recovered, and they tend not to have been improved during their unauthorized use. Insurance companies are all too aware of the fact that, sooner or later, your car will likely turn up somewhere. This means that they are in no hurry to settle your total loss claim. The last thing an insurance company wants is to pay out the full ACV of your car, without so much as a salvage deduction, only to have it turn up the next day.

That’s why total loss claims due to theft can take a lot longer to settle than total loss claims due to damage. What’s more, the deductible for theft is often lower than the deductible for damage, which makes it that much harder for your insurance company to accept. So don’t be surprised if your insurance company tries to draw out the claims process for up to a month or more. Don’t be surprised, for sure, but also don’t let it happen. Don’t let your insurance company transfer to you the risk of your car being returned to you in less than its former state, leaving you with a car which is all the worse for wear and the insurer completely off the hook.

If your car is stolen, file your claim without delay, and stay on the phone until your claim is settled to your satisfaction. You should take all the same steps to determine for yourself your car’s ACV as described above, but stay on the phone to make sure that feigned holdups in settling your claim don’t happen to you.

Keeping Your Totaled Car

Subject to the state you live in, you can choose to keep your totaled car and pay the salvage cost yourself (along with your deductible). You will have your own reasons for wanting to do this, such as an emotional attachment to your car, a low but nevertheless fair settlement offer from your insurance company, or the belief that you can have your car repaired for a lot less than the insurance adjuster’s estimate of repair costs.

In fact, claimants have often been able to find a little-known body shop somewhere which does a quality job, and which is able to source cheap used parts. You might find that your car could easily be back on the road for a lot less than the claim check you receive from your insurer.