How Insurance Companies Determine If A Car Is A Total Loss

Auto, Truck and Motorcycle Accidents,

Have you ever owned a vehicle you loved? What happens if that car is damaged in a wreck? You may be willing to do whatever it takes to repair the vehicle, despite the cost or time involved.

But the insurance company may declare a vehicle a “total loss,” even if the mechanic or body shop says it can be fixed.

What exactly is a “total loss” to insurance companies?

The term “total loss” has a different meaning in the insurance industry than it does to the average person or even a mechanic. When you’re told a car is a total loss, you may take that to mean the car is beyond repair and must be scrapped.

Total loss, as used by an insurance adjuster in a property damage claim, does not mean your car can’t be repaired. It means the expense of repairing the car exceeds the present day value of the car. This is an important distinction to understand, because the insurance company is only responsible for paying what your car was valued just prior to the wreck. If the repair costs are more than 75 percent of the total value of the car, the car is considered a total loss.

To determine whether the necessary repairs exceed this amount, the insurance company must assign a value to the vehicle. That’s part of what an insurance adjuster is doing when he or she examines your vehicle.

How do insurance companies determine if the car is a total loss?

Insurance companies base their payout amounts on “actual cash value,” or ACV.

Several different factors may be considered when determining ACV, including:

  • Make
  • Model
  • Mileage
  • Year
  • Condition

As you can see, the insurance company can’t evaluate the sentimental value of a car, because there’s no objective formula to determine it so the adjuster will stick to those factors listed above. The method of valuing a vehicle isn’t standard across the industry. One insurance company’s calculated ACV may differ significantly from the next.

These inconsistencies in calculating ACV give you some room to negotiate with the insurance company to increase the valuation of your vehicle. This could mean more money in your final insurance payout.

Negotiating actual cash value:

Start your negotiations with the insurance company by requesting a copy of the valuation report it used to determine ACV. The valuation report is an itemized list of the specifications of your vehicle — such as the make, model, and mileage — as well as an inventory of factory upgrades that may affect the overall value. Certain “extras” that increase the value of a vehicle, such as leather interior, airbags or a sunroof, may be missing from the report. If information is missing, alert the adjuster immediately.

The property damage adjuster may be willing to consider certain information you provide in the ACV. The Kelley Blue Book value, the value of similar vehicles in your area and upgrades (such as a state-of-the-art, after-market sound system) can all help to increase your ACV. Keep in mind that the adjuster will only consider the price of vehicles in your area and not nationwide.

If your vehicle has been deemed a total loss, the insurance company will offer the ACV to settle your property damage claim.

If you’re unhappy with the offer, you can have an independent appraisal performed at your expense to see if the appraiser values it higher.

If you agree with the ACV, then you need to decide if you want to surrender the car to the insurance company or keep the car and pay for the repairs yourself. Typically, the insurance company takes possession of a “total loss” car for its salvage value. If you want to keep the vehicle, the insurance company will pay you the actual cash value, minus the amount it would have received at a salvage yard and minus any applicable deductibles. From there, you can take the payout and have the repairs completed yourself.

If you’ve been injured in an auto accident, it’s important to understand your rights in North Carolina. An experienced North Carolina auto accident lawyer will help protect you from unfair insurance company practices and ensure you get maximum compensation.

For answers to other frequently asked questions about auto accident claims, visit our online news & learning center.


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