Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Aug 9, 2021

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Key takeaways...

  • In the insurance industry, a total loss is defined as property that is being written off by the insurance company
  • When a car’s repair costs are higher than it’s Actual Cash Value, the company can declare it a total loss
  • When a vehicle suffers serious structural damage or it begins to rust, it will be totaled because it’s irreparable
  • If your car can be fixed and legally operated on public roads, it may make sense to keep the car
  • To keep a totaled car, you will have to let the insurance company keep the salvage value of the car when settling your claim

Dealing with any insurance claim is never fun, but a total loss claim can be the most stressful. After getting past the initial shock that you’ve been in a serious auto accident, you’ll have to focus your mind and proceed with the claim settlement process. You need to contact your insurance company, give them your statement, and cooperate during the claims investigation.

After the settlement has been drafted, and you’ve reviewed it, it’s your duty to either accept the offer or negotiate. After some losses, it’s obvious that the car will be totaled and then you’ll have to start a new mission to find a new vehicle. Although sometimes, an insurance claim isn’t so cut and dry.

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Even though the damage might not look serious, due to the fact that the vehicle doesn’t retain much value, it’s considered totaled anyway. Here’s what you need to know about your rights:

What is a total loss?

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Auto insurance companies can differ slightly from one insurance provider to the next when it comes to the products they offer. Also, each insurance contract has terms and conditions. Within the terms, you can find an official definition of what is considered to be a total loss is to your particular automobile insurance company.

Since all property insurance contracts have a clause that says how much an insurer must pay when the property is totaled, the definition is typically the same from carrier to carrier.

A total loss is a judgment that’s made by the insurer saying that the cost to repair the property that the insurer is covering is higher than the value of the coverage.

Sometimes, when the vehicle can’t be repaired because of the nature of the damages to it, it will be classified as a constructive total loss. This is also a write-off.

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When is a car declared a total loss?

Most people think of a totaled car as one that has been nearly flattened or warped after a severe accident. However, automobiles can be considered totaled after both major and minor accidents.

If you’ve never filed a claim, you could be shocked to receive a notice in the mail showing that the adjuster handling your claim has made you an offer to settle your claim for your physical damage by totaling your car.

This is especially shocking when the car is still operable and functional. What many don’t understand is that it’s not always about the severity of the damage.

A car is totaled when repairs on the vehicle are estimated to cost more than the vehicle’s Actual Cash Value. Since the carrier is only obligated to pay up to the car’s ACV after a damage loss, the company will offer you a payment for the vehicle instead of paying the full repair costs. If you consider that the ACV of an older vehicle with more miles on it is going to be fairly low, damage sustained in an accident could easily total a car that is still functional.

What is Actual Cash Value?

Actual Cash Value, also written in your policy as ACV, is a term that’s used quite frequently in your contract and on your declarations page.

Since it’s used so often, you should know what this term means to the insurer when it is placing a value on the property that you’re insuring.

To property insurers, Actual Cash Value is defined as the replacement cost of your property minus depreciation.

Other experts will define ACV as the fair market value of the vehicle. While this is up for interpretation, ACV is technically what a buyer is willing to pay a seller for a vehicle that’s depreciated in value.

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Are there other instances when a car can be totaled?

Some states have special Total Loss Thresholds (TLT) that give insurers the right to total vehicles even when the ACV isn’t exceeded.

When there’s a TLT, the company can legally total a car when the damage exceeds a stated percentage of the car’s fair market value. Some states have higher thresholds of 80 to 90 percent and others have thresholds as low as 60 percent.

If the Total Loss Threshold in your state is 100 percent of the car’s actual value, there’s still a chance that your car could be totaled after estimates for repairs show that the damage doesn’t exceed the car’s value.

The only other time that this can happen is when the car has structural damage that makes it unsafe to drive. If the car has flooded or the frame is bent, the carrier will automatically total it out.

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How much will you be offered to settle a total loss claim?

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Total loss settlements can take some time to complete. The adjuster has to look at the condition that your vehicle was in, it’s safety features, the trim level, aftermarket additions, and the demand for the model to decide how much you should reasonably receive.

Here’s what your offer will include:

  • The final Actual Cash Value of the car calculated by the insurance adjuster
  • Estimated cost of sales tax for the replacement vehicle
  • Estimated cost of titling fees
  • Estimate cost of registration fees for replacement vehicle

Can you keep your vehicle if you want to repair it?

It doesn’t always make the most sense to keep a totaled car, but the option is typically there. As long as the vehicle can be repaired and it doesn’t have rust or frame damage, you can keep the car if you tell your insurer that’s what you want to do.

If you don’t want to part with your car, the salvage value of the vehicle will be deducted from your payment.

You have to understand that it will be your responsibility to fix the car if you make the decision to keep the coverage. You should review the repair costs, find out how to get a salvage title, and then determine if this is wise.

If you can easily pass the DMV inspection and you won’t have trouble getting insurance, only then should you consider keeping the car in order to repair it. Before you decide to keep your car, you should first find out if you can still obtain an insurance policy since it can be more difficult now that it has become a salvage vehicle.

Get instant online quotes, be honest about its salvage title, and see how much coverage costs.

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