What happens if insurance totals my car?

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Here's what you need to know...
  • Vehicles are totaled by the claims adjuster when the cost of repairs will exceed the vehicle’s value
  • In some states, there’s a total loss threshold that’s used to determine how close to the value damages need to be for it to be a write-off
  • Older vehicles and newer vehicles that don’t retain their value can be totaled after a somewhat minor accident
  • Insurance companies use a vehicle’s fair market value when comparing repairs costs to value


When you imagine a total loss, you more than likely picture a vehicle that’s been crushed like an aluminum can.

While almost all significant front damage that obliterates all of the mechanical components of a car will result in a write-off, it doesn’t take a whole lot to total every car.

How easily a vehicle is totaled depends upon the type of damage and the car’s value at the time of the loss.

What many policyholders don’t know is that there are things that can be done to help and prevent a total loss designation before they go through with signings settlement paperwork.

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What is a total loss?

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Insurance companies use their own special industry lingo when settling claims. One term most claimants don’t want to learn about is the term ‘total loss’.

A total loss is a write-off judgment by the carrier that states that the cost of the damaged property exceeds its value at the time of the loss.

This can happen even if the vehicle is roadworthy but must be reconditioned or rebuilt before it can be put back on the road.

When is a vehicle declared a total loss?

There’s a maze of different rules and regulations that every insurance adjuster must navigate through when a damage claim is filed that could potentially lead to a total loss declaration.

While there are some exceptions to the rule, in the traditional sense, a car is a total loss under a personal auto insurance policy when the cost to get the car into pre-loss condition exceeds the car’s Actual Cash Value.

What is the formula used by claims adjusters?

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If a claims adjuster plugs the number into the following formula, it can easily signify whether or not the claim can be settled for repairs or as a write off:

Cost of Vehicle Repairs + Salvage Value is greater than Actual Cash Value of the Vehicle

If you’re better with numbers, it might make a bit more sense for you to take a look at the Total Loss Formula that is standard in the industry.

What is a Total Loss Threshold and does that change have claims are settled?

If you’ve had a claim where damages didn’t actually exceed your car’s value but it was still declared a total loss, you might be scratching your head at the above definition.

What many companies don’t tell you is that they operate under a total loss threshold formula that’s generally mandated by the state.

A Total Loss Threshold is a total loss ratio that determines whether or not damages exceed a specified percent of the car’s value.

In states with these regulations, the state believes that repairing a car with a high damage ratio should result in a salvage title.

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Here’s an example of some of the TLT ratios used in states across the nation:

  • Alabama: 75 percent
  • Arkansas: 70 percent
  • Florida: 80 percent
  • Indiana: 70 percent
  • Iowa: 50 percent
  • Kansas: 75 percent
  • Kentucky: 75 percent
  • Louisiana: 75 percent
  • Maryland: 75 percent
  • Michigan: 75 percent
  • Minnesota: 70 percent
  • Missouri: 80 percent
  • Nebraska: 75 percent
  • Nevada: 65 percent
  • New Hampshire: 75 percent
  • New York: 75  percent
  • North Carolina: 75 percent
  • North Dakota: 75 percent
  • Oklahoma: 60 percent
  • Oregon: 80 percent
  • South Carolina: 75 percent
  • Tennessee: 75 percent
  • Virginia: 75 percent
  • Wisconsin: 70 percent
  • Wyoming: 75 percent

Is there ever a time when value won’t be used to declare a total loss?

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Another exception to the rule is when the value isn’t used at all to total the damaged property.

Instead of simply looking at values, the claims adjuster might look at the type of damage that the vehicle’s sustained and how that damage might affect its safe operation.

Here are some examples where states might regulate that the damaged vehicle isn’t salvageable:

  • The frame is bent and requires total replacement to restore or rebuilt the vehicle
  • Unibody damage can lead to total loss due to complicated nature of repair
  • If the vehicle was flooded, it will most likely be totaled because of the risk of rust

Preparing to Review Your Settlement Offer

You should always know what you’re getting into when you’re filing any damage claim. It’s best to prepare for the worst and hope for the best when you have what looks like significant damage.

If your car isn’t terribly damaged and your claim is still be judged a total loss, you need to prepare for negotiations.

Knowing your rights as a first-party claimant is extremely important.

With just a few bits of information, you’ll know where to look on the paperwork to see if negotiations are a possibility.

What to Look For on Your Total Loss Settlement

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When a claim is filed, the adjuster will send an estimator to estimate the costs for repair.

In the meantime, the adjuster will be preparing a vehicle valuation report that shows what it’s worth in the eyes of the insurer in pre-loss condition.

When you receive a settlement summary for your total loss, it will include the valuation report that lays out exactly how your car is valued.

The summary will also include information on the estimated cost for repairs that must be made to restore or rebuild the car.

Here are some factors to look at as you review the summary:

  • Mileage  for accuracy
  • Aftermarket additions added into the value of the auto
  • Auction averages and local sales data used to find fair market value
  • Average cost of labor quoted for the repair estimate
  • Salvage value of the vehicle

How to Negotiate Up the Value of Your Vehicle

If the settlement summary shows that repairs and value are close to one another, negotiating up the value could really help you avoid a company-declared write-off.

There are a few things that you can do to try and raise your company’s value that most company won’t voluntarily advertise to you.

Here are some tips:

  • Ask the adjuster to narrow down the comparables to the top 2 or 3 on the list
  • Ask the adjuster to widen the territory used to check local sales if you have a rare car
  • Provide receipts for add-ons that could add value to the vehicle
  • Advise the adjuster of your vehicle’s rare trim level
  • Provide your own valuation reports showing value through dealers or classified ads

Can I keep my vehicle or do I have to sign it over?

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When a car is totaled, you have two options as to how possession of the vehicle will be handled.

You can either sign over the title of the car to the insurer and you’ll receive the car’s full market value, or you can buy back your car by having the salvage value of the car deducted from your claims settlement.

If you choose to buy back your car, you’ll still receive the ACV and sales tax, but you’ll have to file for a salvage title and repair the vehicle’s damage yourself.

Total loss claims tend to be a bit more complicated than the average damage claim.

If you aren’t happy with the way your claim has been handled, it may be best for you to shop for insurance on your new car through a company that has better claim satisfaction ratings.

Use an online rate comparison tool to find out how much each reputable company will charge you, and then you can make an educated decision on price and reputation.

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