One question many car owners have when in a collision is what makes a car totaled, or what is commonly known as a "total loss" or "write-off".
This question can confuse many people especially if they have been in a car accident and their vehicle appears to have sustained minimal damage.
There are many factors that need to be considered before an insurance adjuster will deem a vehicle a total loss. For instance, while the car may have what appears to be minimal visual damage, there can be severe damage to the vehicles frame and structural integrity. There may also be heavy damage to the engine and transmission. It is these unseen damaged components that can determine the vehicle is a total loss.
There is also the age of the vehicle. An older car worth $6,000 that has damage estimated at $5,000 would typically be considered a total loss. Compare this to a newer vehicle worth $25,000 and the same $5,000 damage which would be repaired.
Sometimes the answer to whether a car is deemed totaled can even be misjudged by the insurance adjuster. I personally have seen a situation where a vehicle worth $1,500 sustained damage to the rear quarter panel at an estimated cost to repair of $2,400. While most would agree the vehicle should have been ruled a total loss, this particular vehicle was repaired.
Car insurance payout mistakes
The former example resulted from an error in estimating the car value and by the time the error was realized by the insurance company the repair had been completed. Which worked out well for the car owner as they loved their car and did not want the car deemed a total loss.
So it pays to check out any offer the insurance adjuster offers because they are only human and could have made a mistake.
How does car insurance determine value
In general, a vehicle is considered totaled and a complete loss when the cost to repair the damage to the vehicle exceeds the total or a predetermined percentage of the market value of the vehicle. The market value is referred to as the actual cash value (ACV) of the vehicle.
While the percentage of ACV varies between state, province and insurance companies a common ratio is 75% to 80% of ACV. In other words, a vehicle may be considered a total loss by one company or state and may be repaired in another.
Another common method some insurance companies use is the "Total Loss Formula". This formula is determined by taking the cost to repair the vehicle and it to the salvage value of the vehicle (the value of the vehicle when sold salvage). If this combined number is greater than the ACV the vehicle is typically considered a total loss.
How to determine total loss value
It is best to determine how a vehicle is considered a total loss in your area by calling the insurance company claims adjuster to get an exact explanation on how they determine when a car is totaled.
When a vehicle is on the cusp of being ruled a total loss or not, the most common factor that may swing the decision is the ACV of the vehicle. The problem with the ACV is its subjective nature being that it is an opinion of value based on market evidence.
As an example, let’s say there are two companies contracted to do an ACV appraisal on a totaled car. While the value conclusion produced by each company may be close, it is very unlikely their opinions of value will be exactly the same. The difference in opinion at times can vary several hundred or even several thousand depending on how much time, effort and detail went into creating the ACV report.
Since the ACV is a critical piece of the equation when determining a total loss, it is important for those dealing with a total loss situation to become educated on how to gauge the actual cash value of their vehicle. Not doing so could mean losing the car you love because it was valued to low in relation to the estimated repairs or worse, being underpaid (below ACV) on your total loss claim.
Read our next article on What is My Car Worth?
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