What Happens When An Insurance Company Totals Your Car
“Your vehicle is a total loss.” These words more often cause ambiguity between an insured and their insurance company. The biggest cause of controversy between an insurance company and an insured, as it is related to total loss, is that most people feel that their vehicle is worth more than it really is.
A vehicle, although historically not a good investment, is very personal to us. Many of us spend a lot of time in our vehicles every day and get attached to our car. Many others ‘mislead’ their cars and inherently feel that their modifications increase the value of the car.
I thought it might help some people if they heard exactly how an insurance company sees it, and how they compensate you for your car, it would be determined that it is a total. There are typically two main things involved in understanding this process: what exactly is a total loss and how the value of a car is determined. In this article, I will discuss a total loss from an insurance company’s perspective.
What exactly does it mean if your insurance company considers your vehicle a total loss? Generally, there are two types or measurements if you want to do this: financial or economic total loss and a clear total loss.
Financial or economic total loss
A vehicle is often declared an economic loss when the repair cost is more than the value of the vehicle, plus sales tax minus your deductible amount. I’m sure you’ve heard that a percentage is used to determine if a car is an economic loss. You have probably heard numbers ranging from 50% to 70% or more. This is true, but it is important to know that not all states determine an actual percentage, and that it is up to the insurance company to determine what it will be for the states that do not determine percentages.
Although all insurance companies that are free to set this number themselves differ, the general number you hear is 70%. What exactly does this mean? I thought a quick illustration might help:
Market value $ 15,000
Plus tax $ 1,050 (7% is used as an example)
Subtotal of $ 16,050
Less deductible $ 500
Total loss value $ 15,550
Cost of repairs $ 11,662
Repairs are 75% of the value
In the example above, your insurance company will likely determine that your vehicle is an economic loss. One thing to remember is that if you pay the value of your vehicle, the insurance company will keep the storage or damaged vehicle and then sell it to a seller. Most insurance companies have negotiated contracts with rescue buyers and will use the road to recover some of the money paid out for the total loss. In the example above, your insurer would know that your car had a salvage value of $ 3,000 (example). So, if they make their total loss decision, they would consider this amount and deduct it from the total amount of $ 15,550 paid, bringing their net cost to $ 12,550.
Another short point to note is that your insurer will also calculate the estimated additional damage if your car is repaired. From my experience as a manager of the contractor and claims, additional or additional damage / repairs are often identified as soon as a car starts the repair process. This damage is frequently detected when it tears off or after parts of the vehicle have been removed and additional damage is more visible. In many cases, it is almost certain that there will be additional damages based on the visible damages, but an employer will only write for what they can see and note that additional damages are likely.
Clear total loss
There is a clear total loss or OTL in which the damage to a vehicle is so extensive in terms of repair and / or endangers the structural integrity of the vehicle as a result of a repair, that the car is considered an OTL word. Some examples of an OTL are:
- Fire damage
- A theft
- Extensive water damage
- Front end collision with high impact
- T-leg or hit hard on the side of a vehicle at the center
In most cases, a claimant does not have the direct power to determine whether a vehicle is an OTL. The two insurance companies I worked for need a driver’s license to make this call. With today’s technology, this can be easily done in the field by sending some detailed photos to a claims manager or property damage manager. In this case, there is not necessarily a repair cost, but the valuation process is the same.
Hopefully it helps you understand what is meant when you report that your car is a total loss. Your insurance claimant should explain all this to you, but if you have a basic understanding, it will definitely help if you find yourself in this situation.