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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.
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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 payout from PD is to file a claim against another driver’s PD. The other driver will also need to have beennegligent 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.
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?
- Remove your license plates and personal items
- Leave the key with the claims adjuster
- Send in any additional keys
- Fill out the associated paperwork
- 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 lawyer 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:
|Score Out of 10 (Settlement and Appraisal Process)|
Auto-Owners, USAA, Amica Mutual
NJM Insurance Company
Nationwide, Allstate, The Hartford
Farmers, GEICO, State Farm, Progressive, Safeco, American Family, Erie, Liberty Mutual, Travelers
Mercury, Country, Hanover, 21st Century
Automobile Club Group, MAPFRE, Esurance
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.