What is Total Loss and What Does It Mean for Your Car Insurance?

A car is declared a “Total Loss” when the cost of repairs would exceed the actual cash value of the car. This type of claim is slightly different from other more minor claims, and requires a bit more effort on the part of the insured. In this article we will go over all the aspects associated with a total loss. 

Table of Contents 

Total Loss Claims and Actual Cash Value

First of all, to be covered for “Total Loss”, you will need to have property damage liability (PD) or comprehensive or collision insurance in your policy. PD is mandatory in every state, but the only way to receive a pay out from PD is to file a claim against another driver’s PD. The other driver will also need to have been negligent in the accident for you to see compensation. The easiest, and most assured way of seeing payment for total loss is through your own insurance company, which you can do through collision insurance. With collision, it does not matter if you were at fault. 

Next, provided you are not immediately injured, you would file a claim with your insurer as you would any accident. A claims adjuster will come to inspect the vehicle to assess the damage. It is here where the total loss designation will be made. 

If the adjuster determines the cost to repair the damages to the car is more than it is "worth" to them - that is, repairs exceed the Actual Cash Value of the car - then it will be a total loss. It is not always as simple as “X” being greater than “Y” however. What constitutes a total loss actually varies between states. Some states go by a Total Loss Threshold (TLT), where damage only needs to exceed a certain percentage of a car's value to be determined a total loss. About half of states use what is called the Total Loss Formula (TLF), where if the sum of the cost of repair plus the salvage value of the car exceeds the car’s ACV then it is considered a total loss. 

Alabama 75% Indiana 70% Nebraska 65% South Carolina 75%
Alaska TLF Iowa 75% Nevada 50% South Dakota TLF
Arizona TLF Kansas 75% New Hampshire 75% Tennessee 75%
Arkansas 70% Kentucky 75% New Jersey TLF Texas 100%
California TLF Louisiana TLF New Mexico TLF Utah TLF
Colorado 100% Maine 75% New York 75% Vermont TLF
Connecticut TLF Maryland TLF North Carolina 75% Virginia 75%
Delaware TLF Massachusetts 75% North Dakota 75% Washington TLF
Florida 80% Michigan 70% Ohio TLF West Virginia 75%
Georgia TLF Minnesota TLF Oklahoma 60% Wisconsin 70%
Hawaii TLF Mississippi 80% Oregon 80% Wyoming 75%
Idaho TLF Missouri TLF Pennsylvania TLF
Illinois TLF Montana 75% Rhode Island TLF

Per the table above, if you were to crash a Toyota Camry valued at $4,800 in Oklahoma, at least $2,880 (60%) of damage would qualify as a total loss. If it were in Colorado on the other hand, there would need to be at least $4,800 worth of damage to be considered total loss.

What Happens If Your Car Is Declared a Total Loss? 

If you agree with it being a total loss, there are a few things that auto insurance companies such as GEICO and Progressive will require:

  • Remove your license plates and personal items
  • Leave the key with the claims adjuster
  • Send in any additional keys
  • Fill out the associated paper work
  • Contact the leasing company if you lease your car

The quicker you do all of these things, the faster and smoother the process will be. After a “Total Loss” designation, the car is usually taken by your insurance company, who then notifies the DMV that the car has been totaled. Depending on the state, the car will be declared ”salvage”. At this point any buyers who specialize in salvaging vehicles can purchase the car from the company.

If you want to keep the totaled car - either because you want to repair it, or even just for sentimental reasons - your company can allow it. If you go that route, you'll get less cash; your payment will be the ACV minus the value of the car as salvage. Though totaled, a salvage car will still have some value in its parts and potential to be restored. GEICO tells customers to also be aware that some states prevent drivers from keeping total loss vehicles, while others will require you to obtain a certificate that states the car is salvage. 

If you disagree with it being a total loss: You may negotiate with the claims adjuster as we go into more detail here. Generally you will be required to submit more documentation and any proof showing the car is actually worth more than previously determined. If perhaps they did not fully account for any modifications you made, that would be a point to be made. If you still feel you are not being adequately compensated, you may bring the case to a laywer to fight on your behalf. 

How Are You Paid for a Total Loss?

The same metric which is used to determine if the car is a “Total Loss”, ACV, is the same amount used to compensate you. The ACV of the car is determined by its pre-loss market value less depreciation from when it was new. This is very different from the number you would find on Kelley Blue Book or edmunds.com. Most large insurers have their own method of determining ACV. Ultimately, the ACV of your car will be determined by its wear and tear, and age, along with other factors your insurer deems relevant. Once you agree to the value, the insurer will pay you that amount - if you owned the car. If your car is leased or financed, then the compensation goes back to the leasing or financing company. 

If you total a leased or financed car, there is a good chance there is a decent amount left to pay. While the insurance company will pay you for the value of the car, it is very likely the value has depreciated, and does not reflect the value of the car, which you took a lease for. If you drive a leased vehicle, you should consider taking out “GAP” insurance which would cover you for any remaining balance in a lease. 

Which Company Is the Best at Claims? 

According the 2015 J.D. Power Study of the twenty largest car insurers in the country, some were better at fair settlements than others. The table below shows the best and worst out of a score of 10 in terms of how satisfied customers were with their settlement and the appraisal process: 

CompanyScore Out of 10 (Settlement and Appraisal Process)
Auto-Owners, USAA, Amica Mutual 10
NJM Insurance Company 8
Nationwide, Allstate, The Hartford 7
Farmers, GEICO, State Farm, Progressive, Safeco, American Family, Erie, Liberty Mutual, Travelers 6
Mercury, Country, Hanover, 21st Century 5
Automobile Club Group, MAPFRE, Esurance 4

Interestingly, the largest companies (State Farm, GEICO, Progressive, Allstate, and Farmers) rank toward the middle; neither the best nor the worst. The largest insurer with the best reviews is USAA, but is only open to military members and their families. Smaller companies like Auto-Owners and Amica however seem to provide stellar service when it comes to settlements and appraisals. 

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