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 Chris Harrigan

UPDATED: Apr 13, 2022

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Key takeaways...

  • Each state has unique laws regarding what must be determined a total loss
  • Actual cash value is calculated as replacement cost less depreciation
  • The special features of your vehicle can help increase your total loss payout
  • Age and condition of your vehicle are used to determine the actual cash value of the vehicle
  • Gap insurance pays the difference between your outstanding loan balance and the actual cash value of your vehicle

Being involved in an automobile accident can be a nightmare. Besides any physical injuries and emotional trauma, if you are unfortunate enough to sustain damage to your car in an accident, your vehicle could be declared a total loss.

Most people hope that their insurance company is going to pay them enough money to replace their vehicle or pay off their current car loan, but there are many factors that insurance companies consider when evaluating what they will pay you for your totaled vehicle.

Knowing what defines a total loss and what factors go into investigating a claim will help you be more prepared should you ever be involved in an accident that results in the need for a replacement vehicle.

Having the right car insurance will also be a tremendous help after an accident. Make sure you have adequate coverage today by entering your zip code above.

What is a total loss?


Each state’s insurance commissioner decides what type and extent of damage result in a vehicle a total loss. Insurance companies also fashion their own policies within the constraints of these parameters.

Most states require an insurance company to declare a vehicle a total loss if it has sustained a certain amount of damage.

In some states, this figure is expressed as a percentage ranging from 50–100 percent of the vehicle, while other states use their own formulas to determine the total loss threshold.

Most states also have laws that stipulate the types of damage that require a vehicle to be totaled.

The kinds of damage that these laws normally entail render the vehicle unsafe to drive on public streets. It can also involve damage that drastically alters the function of the vehicle.

Insurance commissioners create laws regarding total losses to protect consumers. If a vehicle is declared a total loss, then it is required to be re-titled with a salvaged title. Each state has a unique process for re-titling vehicles.

If a policyholder decides to purchase their vehicle back from their insurance company, it is their responsibility to get a salvaged title for the vehicle.

This ensures that anyone who may purchase the vehicle in the future knows that the vehicle has sustained serious damage in the past.

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Actual Cash Value

When determining the value that your insurance company will pay for a vehicle, consumers must remember the difference between The following:

In the insurance industry, these are the two types of payouts you can receive for any piece of property that is declared a total loss.

If a policy stipulates that it covers losses on a replacement cost value basis, then the insurance company will pay the policyholder what it costs to replace the insured property.

Most homeowner’s policies pay out claims on a replacement cost basis, though there are a few exceptions.

Auto insurance policies almost always pay out on an ACV basis. Actual Cash Value is calculated by taking the replacement cost of the property and subtracting depreciation.

For instance, a vehicle had met 50 percent of its ACV when it was declared a total loss. The insurance company would take the replacement cost of that vehicle and subtract 50 percent in depreciation.

Fair Market Value


Figuring the actual cash value isn’t quite as simple as the above example. There are a lot of factors that insurance companies considering when examining replacement cost versus actual cash value.

Most insurance companies figure replacement cost as the fair market value of a vehicle. They find this figure by comparing your vehicles to other vehicles of similar age, mileage, and condition that are being sold on the market.

They then average the sales price of these vehicles to determine fair market value.

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Special Features

Does your vehicle have a backup camera or lane assist? Well, those features will definitely help raise the payout you will receive from your total loss. Special features and advanced safety technology help boost the initial replacement cost of your vehicle.

When your insurance company’s claim representatives compare your vehicle to other vehicles on the market, they will either try to find vehicles with those specific features or bump up your replacement cost by the value that those features add to your car.

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Age of the Vehicle

One of the most important factors that will determine the actual cash value of your vehicle is the age of the vehicle. If you have been driving the vehicle for 20 years, you can bet that the payoff is not going to be nearly as high as it would be if you purchased your car a year ago.

This comes back to replacement cost versus actual cash value. A huge part of determining depreciation in any industry is the age of the equipment or property being evaluated. In the automobile industry, vehicles lose value quite quickly.

The value of a vehicle decreases exponentially with each passing year, as new vehicles with improved technology, safety, and performance features are released.

It’s important to remember this when purchasing both the vehicle and the accompanying auto insurance policy.

Another factor that will help decide your vehicle’s actual cash value is the condition. Maintaining your vehicle and ensuring that it is kept in excellent condition will help you immensely if your vehicle is ever declared a total loss.

Insurance adjusters are pros at determining a vehicle’s condition. Keeping your car clean even affects the way that an adjuster will determine condition. That is why it is important to give your vehicle as much TLC as possible.

Gap Insurance


What do you do if the outstanding balance of your car loan is more than the actual cash value of your vehicle? The solution to that problem is gap insurance or guaranteed auto protection.

Some insurance companies sell gap insurance with their auto insurance policies. If your vehicle is declared a total loss, gap insurance pays for the difference between your outstanding loan balance and the actual cash value payout that you will receive from your insurance company.

This coverage normally has percentage limits, such as 150 percent of the value of the vehicle, but it is a great way to ensure that you are never left with a huge loan balance to pay.

Very few insurance companies currently offer full replacement cost for your private passenger vehicle. Many of the largest and most popular insurance companies will offer replacement cost coverage for the following:

  • Antique
  • Classic
  • Show quality vehicles

They do so because these vehicles don’t depreciate in the same way that a standard private passenger vehicle does.

It’s important to remember the concepts of replacement cost and actual cash value when dealing with a total loss claim. Insurance companies use these concepts, along with fair market value, to determine how they will pay you for your totaled vehicle.

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