When does an insurance company total a car?

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Things to Remember...

  • Physical damage coverage will pay for repairs up to the fair market value of the car
  • If a vehicle is totaled, you can decide to keep it or receive a check for full value
  • In cases, cars are totaled because of water damage or major structural damage
  • Some states have a Total Loss Threshold that states that the loss must exceed a specific percentage of the vehicle’s value
  • The Total Loss Percentage in some states can be as low as 70 percent of the Actual Cash Value

Carrying physical damage coverage on your personal auto insurance is optional in the eyes of the state. In the eyes of a lender, on the other hand, you’re required to carry comprehensive and collision coverage that will pay for damages to the collateral on loan.

Unfortunately, some policyholders aren’t familiar with how coverage works and how much coverage pays until they’re in a situation where they must file a claim.

If you were to look at your auto insurance declarations page right at this moment, you would find all of the coverage that details just what coverage options you carry on each household vehicle.

On the page, it’ll show you liability limits but not a specific limit for physical damage coverage.

This is because vehicle values aren’t fixed and will change from year to year as values depreciate.

Since values of the insured property can change, it can create quite a bit of confusion for policyholders trying to understand why their vehicle is being declared a total loss.

To understand how and why claims adjusters total cars, you have to understand the process of claims valuations. Read this guide to total loss claims, and gain a better understanding of the value of your car and how it’s determined.

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Understanding Actual Cash Value


In your car insurance contract, it specifically states that the policy will only pay up to the Actual Cash Value (ACV) of the car when there’s a covered physical damage loss.

Actual Cash Value, which may also be referred to as fair market value, is the cost to repair or replace the vehicle minus depreciation. This is different from replacement cost valuations, which doesn’t factor in any form of depreciation.

When valuing your vehicle, a policy will not pay more than the market value of the car to repair it.

Market value can be found by assessing the car’s condition prior to the accident and how much similar cars are selling for in the region. If it’s been determined that it costs more than this amount, the policy will not pay for repairs.

Instead, the policy will pay only the ACV of the car so that it can be replaced and declared a total loss.

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How much damage must be done for your car to be totaled?

Cars don’t always have to have significant damage to be totaled. In some cases, even what appears to minor damage can lead to a total loss declaration. How much damage must be done to your car depends upon what your vehicle is worth.

If you have a newer vehicle that hasn’t had much time to depreciate or a model that’s notorious for retaining its value, it will take a serious accident or major mechanical/structural issues to lead to a total loss claims decision.

If your vehicle is aged, even damage from a slow speed fender bender could lead to a totaled car.

The vehicle type and age plays a major role in claims valuations, but the company also uses a Total Loss Formula in conjunction with a Total Loss Threshold to determine if cars should be totaled even when damage doesn’t exceed the ACV.

The Total Loss Threshold (TLT) is the percentage of the ACV that needs to be triggered in a loss for the car to be totaled.

This threshold may be regulated by the state or set internally by the insurer in states where thresholds aren’t set. Here’s an example of how the 80% TLT works in the state of Florida:

  • Vehicle has an ACV of $10,000
  • Damage evaluation estimates repairs to be $8200
  • Based on TLT formula, damage must exceed $8000
  • Vehicle is declared a total loss because damages exceeded TLT percentage

Can ACV be negotiated?


If you have filed a claim and you’ve received notice that the vehicle is totaled, it’s important that you take additional steps to be sure that you’re getting a fair value for your car.

Claims adjusters won’t volunteer the information, but ACV valuations are negotiable.

If you feel like the difference between a damage loss and a total loss is just a few hundred dollars, here’s some steps that you can take to push the value of your car up and the TLT percentage down:

  • Provide bills for maintenance and repairs
  • Hire an independent appraiser for an unbiased assessment of vehicle damage
  • Review the prices of vehicles in your area at dealerships and online
  • Notify your adjuster of aftermarket installations that could raise the value
  • Ask about deductions on value and have errors corrected before settling your claim
  • Show proof of your low mileage if odometer can’t be read

In some rare instances, the value of a car doesn’t have anything to do with declaring a total loss. The most common cause of this is when there’s flood damage. Usually, water and vehicles don’t mesh well together.

Since water can often lead to rust which can break down a car, insurers may choose to automatically total cars for flood claims. If a specific structural element of the car is totaled that makes it unsafe to repair, the car will be totaled out regardless of its value.

What happens if your car is totaled?

If there’s no avoiding a total loss claim, you have the option to either keep your car or sell it to the insurer in exchange for a check for the entire cash value. If you want to keep your car, the salvage value of the car will be subtracted from your check.

Either way, in the end, the car will have a salvage title, making it difficult to insure.

If you’ve inquired about total loss protocol and you’re not happy with the service you’ve received, it might be time to shop around for coverage. You can find the most affordable rates by using an online insurance rating tool.

Once you’ve compared rates, consider contacting the companies to see how they deal with total losses and then make your choice. Start shopping by using our FREE tool below!

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