A car accident affects your life significantly. Even if you escape physical injury, you still have the lingering effects of the trauma and, most often, the tedious aftermath of insurance claims, adjusters, rental cars, and car repairs. If your car suffers little damage, your insurance company or the responsible party’s insurance company pays for the reasonable repairs to your car. If the cost of repairing your car exceeds its value or comes within reach of the value threshold, however, your insurance company “totals” your car.
When is a car “totaled”?
First, you should know how your insurance company arrives at the decision to “total” your car. Insurance company adjusters first calculate the car’s actual cash value (ACV), including depreciation, by consulting databases, like Kelley Blue Book or National Automobile Dealers Association (NADA), for an appraised values based on several factors:
- any pre-accident upgrades or improvements
Location (rural or city, state to state) also makes a difference to value based on supply and demand. In some regions, dealerships sell more trucks and suv’s than in others.
Then the adjuster compares ACV to the cost of repairing the vehicle. Insurance company automobile appraisers determine the cost of repairs. If the cost of repair exceeds the ACV, the insurance company declares the vehicle a total loss and issues you a check for that total loss amount.
- Cost of repair > ACV = Total loss
While insurance company procedures and policies vary, most insurance companies deem a car “totaled” if the comparative ACV to the cost of repair ratio indicates that it’s not worth repairing the vehicle. For example, a 30-year old Nissan Maxima worth $1500.00 that needs $800.00 to $1000.00 worth of repairs is likely a total loss even though the repairs cost less than the ACV.
Insurance companies use various formulas to arrive at a total loss determination, but all start with calculating the cost of repair to ACV loss ratio.
- ACV : cost of repair
Then they compare that total loss ratio to company-established limits or state law limits. Some states set the damage to value ratio limits ranging anywhere from 50% or 100%, a figure known as the Total Loss Threshold (TLT).
- Cost of repair > 75% of ACV = Total loss (Alabama TLT)
Other states allow insurance companies to default to the Total Loss Formula (TLF), which is when the cost of repair plus salvage value exceeds the ACV. The car’s resale value as parts and metal equals its salvage value.
- Cost of repair + salvage value > ACV = Total Loss (California TLF)
How is total loss value calculated?
Second, you should know how an insurance company arrives at the total loss value that they pay you. Insurance companies use the appraised value of your vehicle (make, model, year, condition, etc.) less any deductible you owe to set the loss value. They also deduct a contributory negligence percentage if you also caused the accident. For example, if you are 50% responsible for the collision, you’ll get half of the appraised value.
After calculations and appraisals, the paying insurance company cuts the check. If the car is financed or leased, the money goes directly to the lender or leaseholder with any leftover going to the registered owner.
What if you don’t agree with the insurance company’s determination?
Challenging the appraised value of your car: You can challenge your vehicle’s valuation by examining the comparable values the insurance company relied on in arriving at their value and then presenting your higher valuations. You can also hire an appraiser to produce a report for the insurance company. You may get more money, but there’s no guarantee.
Buy your car back: If you want your car back for sentimental reasons or to fix it up yourself, most insurance companies will give it back and pay you the actual cash value minus your deductible and the salvage value.
Force a total loss: If you want the insurance company to “total” your car (maybe it’s close to the threshold), consider making a diminished value claim. In short, the diminished value is the difference between the car’s value before and after the accident. A car untouched by an accident is worth more than a car that has.
Convincing the insurance company of the diminished value, however, takes work to find before and after accident appraisals. You need to first find your car’s pre-accident market value by looking it up on Kelley Blue Book or NADA. Then you need to hunt down cars like yours with accident histories and come up with a value based on four or five of those comparables to show the difference in pre and post accident values.
You can find the diminished value on your own or hire a professional to do it for you. You can also rely on the insurance company to use their formula for calculating diminished value, but you can be certain that number will be lower than yours.
Be sure you get the full value for your property damage in an accident by taking the appropriate actions. Get informed. Seek advice from personal injury attorney Joshua W. Golzer, APC, to verify proper compensation for your losses.