How do car insurance companies calculate value in a total loss accident?

How car insurance companies calculate value in a total loss accident starts with the cash value for the car. This value is determined by figuring out how much the car would have sold for on the open market at the time of the accident. After the insurance company determines the cash value, it will determine the total damage based on the information provided by the insurance adjuster and the mechanic.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent

UPDATED: Oct 29, 2020

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Auto insurance provides coverage to drivers for all kinds of car mishaps, from fender bender repairs to a car that is completely totaled. Right after an accident, stress levels are high, a long list of tasks awaits, and the inconvenience of being without a car only adds to the misery. This is further compounded when injuries or other financial demands caused by the accident are present. Understanding car insurance companies’ formula for totaling a vehicle can shed insight for accident victims, helping them stay involved in the process. This can help relieve a certain amount of stress, in addition to letting the insured prepare for, and have a say in the final determination that comes from the insurance company.

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Definition of “Totaled”

Many people used the word “totaled” to describe a car after an accident. In reality, the word can mean many things, but is not always used as it should be when discussing a damaged vehicle. A simple definition is a situation where the entire car is worth less than the cost to repair all of its damage. Certain types of damage hurt the overall structural integrity of a vehicle, and could make it dangerous to drive, even if it looks fine.

The full extent of damage can only be determined by thoroughly examining the car. A vehicle may appear to be fine on the outside, and yet the engine may have sustained extensive damage. Conversely, the car may have body damage and be perfectly fine underneath the hood. Insurance companies consider damage to both the body and engine when making a determination about the cost to repair the car. Damage to the engine carries more weight, though, since it costs more to repair than the car body. Additionally, the car may have sustained major damage to its frame and cannot be repaired back to a safe condition.

Get Involved

Having some involvement in the determination of the car’s value is helpful, and even though an insurer might carry on with the process as if the evaluation is strictly up to them, the insured has the right to hire a mechanic or use one who works with the insurance company to review the car as well.

The insurance company will send an insurance adjuster to look at the vehicle, and review the mechanic’s report. The insured can use a mechanic they are comfortable with and, if not comfortable with the assessments from the adjuster or mechanic, may ask for another mechanic to look at the vehicle. The insured may need to be their own advocate and do all they can to get the most for their car, since insurance companies are simply making a business decision, and will do whatever keeps costs the lowest for them.

The Formula

The first number the insurance company starts with is the cash value for the car. This value is determined by figuring out how much the car would have sold for on the open market at the time of the damage or accident. This value determination considers the car’s upkeep, mileage, age, condition of the exterior and interior, any pre-existing damage, and finally, damage from the accident itself. The insurance company will often give the insured the value listed in the blue book. This will not account for a car that had lower mileage, was in better-than-average condition or had additional equipment or options installed.

The best way to prove the value of a vehicle is to keep all receipts and records for work that was performed on the car. From small things like oil changes to larger expenses such a new transmission, records of the work done will help support the car’s real value. Another way to prove a car has more value is to find other closely comparable cars that have recently sold, using their sales prices as a benchmark for the value of the insured’s car. With out proof otherwise, the insurance company will go with the value that is easily supportable, which may not be correct. It is up to the insured to prove why the car’s value should be something different. Additionally, the person should have the adjuster walk them through the total loss worksheet details, so all of the calculations, including the subtraction of the deductible, have been made clear.

Repair or Replace Cutoffs

After the insurance company determines the cash value, it will determine the total damage based on the information provided by the insurance adjuster and the mechanic. Each insurance company uses its own process for determining the cutoff between repairing or replacing the vehicle. The percentage generally used among insurers is 70 to 75%, meaning any repair costs that would total more than 70-75% of the car’s value will cause the vehicle to receive a determination to be totaled. However, some insurers may also go as low as 50% damage or as high as 80% before totaling a car.

Once the final determination is made to total the car, the insurance company will provide the insured with a check for the car’s value. The money can be used to purchase a new vehicle, or in any other way the insured sees fit. The totaled car goes to a salvage yard where it is sold, with the proceeds going to the insurance company. If the insured wants to keep the vehicle, the option needs to be discussed with the claim adjuster early on in the car’s evaluation process. Once it goes to auction, the owner may have a difficult time trying to buy it from the auction house. On the flip side, keeping a car after it has been “totaled” by the insurance company means a potentially large project of repairing the car. Additionally, the car will have a salvage title, which shows on its carfax report and dramatically decreases its market value even if fully repaired.

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