How Does the Insurance Company Decide if My Car is a Loss?

You may have been involved in a serious car accident and by the looks of the damage to your car, you may assume that the insurance company may junk your car, or in insurance terms deem it a write-off. Many times a car with serious damage will be written off as a loss but a car with very little damage may also surprisingly be written off as a loss. So how do insurance companies figure out if your car is going to get fixed or go to its final resting place at the junk yard? Below we'll explain some of the different factors and formulas that insurance companies use to make that determination.

How Badly Damaged Does My Car Need to be for the Insurance Company to Write It Off?

Your car insurance company may deem your car a loss for a variety of reasons. One of the most common reasons would be if the price to repair the damage to your vehicle is higher than the car's Actual Cash Value.

Actual Cash Value (ACV) is the fair market value of your car plus title costs, registration fees and sales tax. Fair market value is the amount you would be expected to pay if the vehicle was purchased from a seller today.

Even though the most common reason for writing off a vehicle is that the damage exceeds the replacement cost, the damage does not have to be very high for a total loss to be declared.

In many states, insurance companies utilize a formula called the Total Loss Threshold (TLT) which dictates whether the damages to the vehicle are high enough to lead to a write-off. The TLT is a damage -to-value ratio that can range between 50 and 100 percent in different states.

It's important to talk to your insurance agent to check the laws in your state regarding Total Loss Threshold so that in the even you need to make a claim, you feel comfortable with the settlement.

Total Loss Formulas

Not every state uses a Total Loss Threshold (TLT). Some states mandate that insurance companies use a Total Loss Formula (TLF). TLF is an equation that helps the insurance company determine if it is worth it to repair the car or if salvaging the vehicle is the best option. This equation is especially helpful when the car in question is older and repair costs are still high.

The Total Loss Formula is the cost of repairs + salvage value after loss > Actual Cash Value. So if the TLT or TLF is not met, your car will be written-off. You will not have the option to appeal or negotiate the decision.

It only practical for the insurance company to write-off a vehicle if the repairs and the salvage cost following the loss is higher than the actual cash value (ACV) of the vehicle.

If the vehicle repair costs are just not economical based on the damages sustained, you should anticipate the insurance company will decide your vehicle is a write-off.

What Happens if the Insurance Company Writes-Off My Car?

If the auto insurance company has declared your car a write-off, they will notify the Department of Motor Vehicles who will then issue you a salvage title.

There are different salvage classifications the DMV uses and these are based on the reasons the car was declared a write-off. It is important to note what salvage classification is on the salvage title if you plan on keeping and insuring your vehicle after the loss.

Below is a list of the most common salvage classifications.

Salvage Rebuilt Vehicle – This classification is used for a vehicle that has sustained damage above the Total Loss Threshold (TLT) but has been repaired or rebuilt for title and registration.

Reconstructed Vehicle - This classification is used for a vehicle that has been altered from its original construction with additional or substituted parts that did not come stock.

Junk Vehicle – This classification is used for a vehicle that is inoperable or not capable of being driven safely on public streets. The vehicle is used for parts and cannot be registered again.

Flooded Vehicle – This classification is used for a vehicle that has either been fully or partially submerged in water and has been classified as a flood vehicle if the body, transmission, or engine sustain serious damage.

Stolen Vehicle – This classification is used for stolen vehicles which are typically a total loss due to the fact that they are never recovered.

How Do I Deal with a Total Loss Claim?

You will need to file a claim if you have been in an accident, you find your vehicle to be vandalized or it has been stolen. The type of insurance coverage you carry will dictate whether or not your insurance company will cover repairs. If you carry either comprehensive or collision coverage, physical damages will be covered in the event that you are in a collision or file any other than collision claim.

It is always good to be knowledgeable when filing claims. Look up your vehicles value, review the valuation given to you, know your rights as it pertains to filing a claim and research laws in your state in the event you are not convinced your car is a loss. You can always contact your insurance agent and they will be more than happy to walk you through the process.

If you’d like to know more ways we can help you save money on your auto insurance, please contact us or get an online quote.