Total car loss (Photo: @south_nostalghia via Twenty20)

How Does the Insurance Company Determine the Value of a Totaled Car?

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Total car loss (Photo: @south_nostalghia via Twenty20)
The junkyards are full of them: wrecked and totaled cars that have met an unfortunate end in some way. Losing a car suddenly in a car accident or natural disaster can be a frustrating and time-consuming thing, one you hope you never have to go through.
When a car is considered a total loss by the insurance provider, they have to pay you out its pre-accident value. The problem is this: They might not think it’s worth as much as you do. But how does the car insurance company determine the fair market value of a totaled car? And what can you do if you don’t agree with their offer?

What Does a Total Loss Mean?

A vehicle is determined a total loss by a claims adjuster when it’s damaged or severely affected in such a way that it can’t be repaired for further use or salvage, or when the total money needed to repair exceeds the current value of the car.
It doesn’t always have to do with a collision, either. As an example, an estimated half-million cars were flooded during Hurricane Harvey, many of which were deemed total losses by insurers.

The Difference between a Totaled Vehicle and a Repairable Car

The cut-off line between a repair and a total loss is all about the numbers. The auto insurance algorithm used to calculate whether a car is repairable or a total loss is a closely guarded secret, and the formula can be affected by state law as well. But a good rule of thumb is this: If the repair cost is 70 to 75 percent of the vehicle’s pre-accident actual cash value or more, it’s a write-off.  
Typically, a vehicle with damage below that threshold will be repaired, so long as it can be fixed to safely operate once again. That’s why knowing the car’s undamaged value is so important, aside from getting paid a fair amount for what your car is worth if you sell or trade it in.

Factors That Go Into a Total Loss

How does your insurance policy determine if you are the not-so-proud owner of a total loss car? These are five primary factors that contribute to that unpopular designation.

1. The Extent of the Damage

How much damage your car experiences can determine if it’s a total loss or repairable. For example, a car that looks fine but has a cracked frame may be deemed a total loss while a bashed-up body with no mechanical damage could be reasonably repaired to before-loss condition. The type and amount of damage is a significant factor.

2. The Estimated Cost to Repair

That threshold for repair (around 70 to 75 percent of the pre-accident value) is one of the most heavily weighted factors for determining if you’re going to need a whole new car. It isn’t 100 percent because there are other costs associated with repairs, such as rental cars, to consider.

3. The Age of the Damaged Vehicle

An important factor in determining a total loss is the age of the vehicle. That might sound silly, but it’s true. It may be literally impossible to find certain replacement parts for a vehicle that’s 10 years old. If it looks like a repair shop would be under the gun trying to source parts, it could be written off instead.

4. The Make, Model, and Trim Level

A car’s value is heavily dependent on the make, model, and its trim level. If you compare values between different models and trim levels on the Kelley Blue Book’s What’s My Car Worth tool, you’ll see it could be hundreds or thousands of dollars difference. That makes a difference to the valuation, obviously.

5. Recoverable Costs

How much the insurer will get for selling the car for salvage is part of the equation, too. Your car has a greater chance of being deemed a total loss car if the insurer can recover more costs selling it to the salvage yard.
 Essentially, total loss value is determined by adding up the cost of the repair and associated costs, the value your car diminishes due to an accident, and the rental reimbursement costs while your vehicle is down for repairs. Then, the value the insurer will sell the damaged car for salvage is taken off.
Sound confusing? Let’s break it down:
  • You own a car worth $10,000, but you unfortunately get into a bad accident. Don’t worry, though, you’re safe and healthy.
  • The damage is estimated at around $6,000.
  • Once it’s repaired, your car will only be worth, say, $9,000 because of the accident in its vehicle history report, so its value is diminished by $1,000.
  • You’ll need a rental car for around 40 days while the shop has your car. If it’s $35 per day for a rental, that accumulates to $1,400.
  • But if it’s written off, the insurer estimates they can sell it for $900 at auction as salvage.
  • The balance ends up being $7,500, or 75 percent of the vehicle’s pre-accident value. There’s a good chance you have a totaled car.

How is a Total Loss Value Determined?

The insurance company looks at several factors to determine how much the pre-accident value is for your car. They look at the year, make, and model you drive (or drove) for an accurate comparison with others in the market. It’s further narrowed down by mileage (a low-mileage car retains more value). Then, the car’s overall condition is factored in.

What Can You Do if You Disagree with the Valuation?

Aside from a social media rant, is there actually anything you can do if you don’t agree with the valuation your insurer puts on your car? Yes, there are a few options at your disposal.
*  Talk to your appraiser. A discussion emphasizing the emotional toll of the accident, any vehicle upgrades and repairs you’ve performed, and the financial toll it will take on you can help bump up the value.
  • Get an independent appraisal performed. Search out an appraiser online in your area and pay for an appraisal that hopefully leans the value in your favor.
  • Have a local governing body investigate. A state-appointed representative will determine if you’ve received fair appraisal from the insurer.
*  If you still don’t agree, you can go to an arbitrator with the insurance company to have a third party help settle the dispute.
*  And finally, taking legal action against the insurance company is possible, but it’s not always worthwhile.