How do insurance companies value totaled cars?

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Things to Remember...

  • Insurers use a Total Loss Formula to determine if repairs are greater than a car’s value
  • Standard Total Loss Formula (TLF): Repair cost + Salvage value > Actual Cash Value
  • Some state officials and insurers regulate ratios and have set a Total Loss Threshold
  • If damaged parts affect the operational safety of the car, it can be totaled out
  • The Actual Cash Value of your vehicle at the time of loss may be negotiated

Anything from a collision to a fender bender can result in a total loss claim. Even what may not appear to be a big issue can lead to a totaled car – minor body damage can hide major mechanical issues.

Finding out your vehicle is a total loss can be shocking if you don’t fully understand how total losses are determined. Each company sets their own criteria when it comes to totaled cars. It’s important to do your research to ensure you get a fair value for your car.

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What is a total loss and the Standard Total Loss Formula?


In some cases, the money needed to restore a vehicle back to pre-loss conditions can exceed the vehicle’s worth. In other words, it would cost the insurer more to fix your car than to just buy a new one. When this happens, the insurer can close the claim of your vehicle as a total loss.

Here’s a breakdown of what the traditional Total Loss Formula looks like:

Total cost of repairs (minus deductible) + Salvage value > Actual Cash Value (ACV)

Traditionally, a company simply deemed a car a total loss when the cost of repairs exceeded the value of the vehicle. The value of a car, including depreciation, is called the Actual Cash Value or ACV.

Actual Cash Value is the exact opposite of Replacement Cost Value, or RCV, which does not factor depreciation. All standard personal car insurance policies use an ACV valuation when claims are filed.

The salvage value, on the other hand, is how much the insurer can sell the car for in its totaled state at the end of its useful life. If you keep your totaled car, the salvage value is subtracted from your claims check. If you give your car to the insurer, the salvage value is added to your claim.

How do adjusters calculate ACV?

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Adjusters will use a combination of different information to calculate an ACV. The actual determinants vary from state to state and from company to company.

Here are some of the most common things adjusters look for when making their calculations:

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Is the ACV negotiable?

When the claims adjuster approaches you to settle, they will tell you how much they have valued your car for.

This is why it’s crucial that you review your claims documentation thoroughly to make sure ACV is right.

Don’t just take the company’s word for it – speak up when something doesn’t look right. Adjusters won’t volunteer the information, but ACV’s are negotiable. Do your own research to make sure you are getting a fair value for your car.

You can make sure you are getting a fair deal by using online appraisal tools, visiting dealers, and searching for similar vehicles. Once you’ve done your work, you will be equipped to negotiate a better deal. The higher your ACV, the more money you will receive for your car.

Even if you don’t want to total your car, a higher ACV will help you avoid a future total loss declaration in the future over minor accidents.

What is the difference between a Total Loss Formula and a Total Loss Threshold?

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Some states have found it unwise to repair a car when its damages are close the value of the car. To not run the risk of losing money, some states demand cars be totaled if the cost of repairs exceeds a certain threshold,

In other words, the Total Loss Threshold (TLT) is the percentage that the total loss ratio of repairs/ACV must exceed before cars are automatically eligible for a salvage title. If a state does not dictate this threshold, a company may dictate it.

Be sure to review the TLT in your state. In other cases, if a vehicle damaged to the point where it is unsafe to drive, repairs may not even be considered.

Do your research before an accident. Understanding how auto companies decide the value of your car ensures you get the best possible deal in the event of an accident.

If you’ve previously filed a claim and you’re not happy with how it was handled, it’s time to shop around for new insurance.

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