When a vehicle is said to be a “total loss,” it means that the cost of repairs exceeds the vehicle’s actual cash value. While this may sound simple enough, there are many questions surrounding total loss car insurance settlements. How is a total loss settlement calculated? Can an insurance company force you to total your car? Can you keep your car once it has been totaled?
To help you navigate the total loss car insurance process, Negretti & Associates provides this overview of answers to popular total car loss questions. If you still have questions about your car accident case, reach out to us today for a free consultation.
How Is Total Loss Calculated?
What constitutes a total loss can vary between states.
About half of states use what is called the Total Loss Formula, where if the sum of the cost of repair plus the salvage value of the car exceeds the car’s actual cash value then it is considered a total loss.
Some states go by a Total Loss Threshold, where damage only needs to exceed a certain percentage of a car’s value to be determined a total loss.
- Arizona uses the Total Loss Formula
- California uses the Total Loss Formula
- Colorado uses the Total Loss Threshold
How Is a Total Loss Car Insurance Settlement Payout Calculated?
In a total loss car insurance settlement, you’re compensated for the settlement amount, less your insurance policy’s deductible and your insurance company’s cost for selling the vehicle to a salvage yard. Your settlement may also compensate you for costs related to a replacement car, such as estimated sales taxes, vehicle registration fees, and title.
If Your Car Is Totaled and You Still Owe on the Loan
If you have a loan on the vehicle, the lender will be paid before you receive anything. For example, let’s say the fair market value of the vehicle (total loss amount) is $10,000, but you owe a bank $8,000. The bank will be paid the $8,000 first, and you will receive the remaining $2,000.
If your loan amount exceeds the fair market value, the lender will be paid and you will not receive anything. Additionally, absent gap insurance, you will still owe the lender the outstanding balance on your loan.
Can You Keep Your Car If It Is Totaled?
Yes. If you elect to keep the vehicle — perhaps you own a rare car, you’re a bit of a gearhead, and you’d like to rebuild it — your insurance company may require you to obtain a salvage title. This may put significant limitations on the vehicle in the future. In some states, salvage-title vehicles cannot be driven on public roads. Salvage title vehicles, once rebuilt, can also be difficult to insure and re-sell.
Your insurance company will also reduce the total loss payout by the amount that the insurance company could have received by selling the vehicle to salvage. This can be as a few hundred dollars — depending on the year, make, and model of the vehicle.
If you want to know whether you can still drive your car, after being declared a total loss, you might want to check with a mechanic.
How To Fight Your Insurance Company After It Has Called Your Car Totaled
If you disagree with the total loss amount assigned to your vehicle, and you used your insurance company to evaluate the loss, you may have the option of invoking your insurance policy’s appraisal clause.
The appraisal clause enables you to have your vehicle independently inspected and appraised, to see if the loss amounts differ. You would order the appraisal at your own cost.
If you invoke the appraisal clause and find that the amounts differ, your property expert and the insurance company’s expert are supposed to meet and confer to see if an agreement can be reached on the value.
Can Insurance Companies Force You to Total Your Car?
A more common question that we get asked is whether the insurance company can elect to repair your vehicle rather than declare it a total loss. (We’re just not sure why someone would want to have a vehicle repaired if their insurance company has already proposed to have it totaled!)
The question about repairing your vehicle is typically found in a situation where the cost of repairs falls is just below the total loss threshold/formula outlined above. If you want to push for a total loss, be sure to see if your policy has an appraisal clause that you can elect to use.
Have a Question? Give Us a Call
Wherever you are at in your process of achieving a total loss car insurance settlement, remember that you don’t have to go it alone. Reach out to Negretti & Associates today for a free, no-pressure case evaluation with one of our trusted team members. Contact us online, call us at 1-833-827-3535, or text us with your questions.