Car accidents are never fun, but if your car is severely damaged in a fender bender, you may be saying goodbye to your ride. Will your car go to the body shop or the scrap heap? Will it be fixed or a total loss? It depends on where you live and who your insurance company is.
Here we’ll explain total loss thresholds, how vehicle total loss is calculated and what you can do if your car is totaled.
- The total loss threshold is the percentage at which an insurer must legally declare that a car is a total loss and apply for a salvage title. The percentage varies from state to state.
- Twenty-two states use a total loss formula instead where they calculate the cost of repairs plus the vehicle’s scrap value. A car will be totaled if the result equals or exceeds the actual cash value (ACV) of the car pre-accident.
- Insurers operating in multiple states have an internal method of assessing the total loss amount to be consistent regardless of where the vehicle is located.
- If your car is financed – and you have gap insurance in place – that policy will pay the difference between the insurance value of the car and your loan payoff amount.
- Car owners can repurchase the totaled car from the insurance company if they want to repair it, but it will have a salvage title and be more expensive to insure.
What does total loss mean?
Total loss is a term used in insurance to describe extreme damage or total destruction of property. It generally applies when the cost of repairing the property exceeds its value prior to the incident that caused the damage. This is where an insurer must legally declare a car totaled and apply for a salvage title.
What is a total loss threshold?
The total loss threshold is set at the state level so it will vary depending on where you call home. For example, a car with damage totaling 75% of its value is totaled in New York but considered repairable in Texas, where the threshold is 100%. It’s common for a totaled car to get a salvage title but then be repaired to the point where it can be driven again and receive a rebuilt title.
What is a total loss formula?
There are 22 states that don’t assign a specific threshold percentage but instead use a total loss formula (TLF). The insurer will determine the cost of the repairs plus the scrap value of the vehicle. If this number equals or exceeds the actual cash value (ACV) of your vehicle before it was in an accident, your car will be totaled. If the number comes in lower than the ACV of your ride, the insurer may decide to repair it.
These formulas, or at least the numbers that are plugged into the formula, can vary by the insurer which means that one insurer may end up totaling the vehicle while another may decide to repair it.
Here are the specific thresholds for each state:
Why is my car being totaled?
You may think the damage to your vehicle is minimal, but your insurer is looking at it with different eyes.
Your insurance company doesn’t care about your fond memories, sentimental attachment, or the fact that you might not be able to afford a new car. It’s all business: The bottom line is that it is going to take the cheapest option.
How much damage does it take to total a car? The criteria for making a decision on totaling a vehicle is different for every insurer and in many cases, it is dictated by state law, but the basic formula is usually the same. If repair costs reach a certain threshold of the actual cash value (ACV) of the car, say goodbye to your ride. However, due to thresholds that vary by state, a car may be totaled in one state and repaired in another.
As an example, if your wrecked Nissan Rouge is valued at $5,000 in Iowa, you would need only $2,500 of damage to call it a total loss as the threshold in Iowa is 50%. However, if you live in Colorado it would take $5,000 in damage, as the threshold in the Centennial State is 100%.
According to attorney Thomas Simeone, with Simeone & Miller, “Legally, the most an insurance company is liable for is the actual cash value of the vehicle at the time of the accident. Their decision will be based on whether it is cheaper to repair the car back to that condition or write you a check and total the vehicle.”
What happens after an accident?
First things first, for your vehicle to be declared a total loss or be repaired through an insurance claim, you have to be carrying comprehensive insurance or collision coverage. If you’re hit by another driver who is at fault for the damage, the other driver’s property damage liability insurance would pay for the damage to your car.
At what point is a car considered totaled? An appraiser will examine the car and calculate not only the cost of repairs but also your car’s pre-accident cash value, considering make, model, year, options, mileage and condition. If the car meets the required threshold, it will be totaled.
While total-loss thresholds may be mandated by state law, they rarely come into play. Even though insurers are required to total the cars that are over these thresholds, they can and do total many vehicles that are under the threshold.
“Insurance carriers that operate in multiple states have an internal mechanism for assessing total-loss levels so as to be consistent regardless of where the vehicle is located,” says Tony Rached of Total Loss Appraisals in Alpharetta, Georgia, says.
Once your car is totaled (and you are not fighting the decision) your insurer will most likely require you to do the following:
- Remove the license plate
- Remove all personal items
- Give your keys to your claims adjuster
- Notify your lender if you have a loan or lease on the vehicle
- If the accident was not your fault, a rental car should be covered
The last thing you need to do is start shopping for a new ride and possibly a new insurance company.
There is a good chance your rates will be headed up if you are in an accident that results in your car being totaled. While the premium increase will vary by insurers, we ran the numbers and found that one at-fault property damage accident over $2,000 will raise rates by an average of 31% annually. The increase for an at-fault bodily injury accident averages 32%.
If your rates are headed up after a claim, one of the best ways to bring them back down a bit is to shop your policy. Insurers rate risk differently so premium quotes can vary dramatically.
Finally, don’t wait too long to start car shopping. Rental car coverage is usually good for only 30 days or until a settlement offer is made.
What can you do if your car is totaled? Can I keep my car if it’s totaled?
Total-loss claims are often frustrating. Here are a few options to keep in mind when dealing with a total loss claim and deciding what to do with a totaled car:
- Buy it back: If you really want to keep your car, most insurers will oblige. Your insurance company will write a check for the actual cash value of the vehicle minus your deductible as well as the salvage value. While you still have your car, it is now up to you to repair it. In addition, the car now has a salvage title attached to it, which can make it more difficult to insure, even if it has been repaired. A salvage title can also seriously impact the resale value of a vehicle so if you plan on selling it at some point it will most likely be worth much less than a similar vehicle with a clean title.
- Mind the Gap: “If your car is financed, check to see if you have gap insurance which will pay the difference between your insurance value and the amount to pay off your loan,” advises Steve Bentz, vice president of claims at Avinew. If your totaled vehicle has a loan or lease, you may end up owing more than the insurance payout. Cars depreciate quickly and most new vehicles lose about 10% of their value as soon as you drive off the lot according to CarFax. This number can jump up to 20% after the first 12 months. Unfortunately, your car loan doesn’t depreciate so you could end up on the hook for the difference between the actual cash value (what your insurer values the car at) and the loan or lease amount left on it. Most leased cars come with gap insurance included in the lease, which should cover this gap, but most bank loans do not typically include this coverage. It may be a good idea to put this coverage in place until the car stops depreciating faster than your loan.
- Question the appraisal: If you are unhappy with your insurer’s number, challenge it. Most appraisers will bump their offer up $500 just for asking. “Ask for their evaluation and review it to ensure all your car’s features, mileage, and condition are accurate. These will make a difference in your car’s value,” says Bentz. “If you disagree with the value, be able to support why, research vehicles like yours online and don’t be afraid to negotiate.”
- Total it: If you are close to the threshold and would prefer your car be totaled, think about making a diminished value claim. A car that has been in an accident and repaired is worth much less than a clean car. Appraiser Rached says, “If the owner has a solid case of diminished value, they can argue that the total claim payout (including diminished value) will exceed the vehicle’s actual cash value, forcing them to total the car for financial reasons.”
- Appeal if necessary: It is always possible to appeal. “If you cannot agree with your insurance company most policies allow you to invoke your right to appeal the decision,” advises Bentz. Ask your agent or the adjuster assigned to your claim about the appeals process.
How much does insurance payout for totaled cars
From 2010, 2014 and 2018 claims data, the most recent available, the Insurance Research Council has determined the following:
How many claims result in totaled cars?
Comprehensive claims for totaled cars: In 2018, 8% of comprehensive claims involved vehicles that were totaled, about the same as in 2010 and slightly higher than in 2014.
Collision claims for totaled cars: Nearly one in four (22%) of 2018 collision claims involved vehicles that were totaled, higher than in 2010 and 2014. Nearly half (47%) of the cost of all collision claim payments were due to total loss claims, up from 43% in 2010 and 42% in 2014, when accounting for the share of total claim dollars paid, according to the IRC.
Property damage liability claims for totaled cars: Total loss vehicles were less common among property damage liability claims than in collision claims. Thirteen percent of 2018 property damage liability claims involved vehicles that were totaled, slightly higher than in 2010 and 2014.
What is the average claims payout for totaled cars?
Comprehensive: The average payment for comprehensive claims with totaled vehicles was $8,173 in 2018, more than 5 times the average payment of $1,496 among claims where the vehicle was not totaled. the cost of totaled vehicle claims has risen much faster than more minor claims. From 2010 through 2018, the average claim payment for a totaled vehicle increased by an annualized rate of 7.5%, compared with little change among comprehensive claims without a total loss. In terms of the percentage of dollars paid, the share of dollars for totaled vehicles has risen from 24% in 2010 to 34% in 2018.
Collision: The average payment for collision claims with totaled vehicles was $10,484 in 2018, more than three times the average payment of $3,286 among claims where the vehicle was not totaled. In terms of the share of total claim dollars paid, nearly half (47%) of the cost of all collision claim payments was due to total loss claims, up from 43% in 2010 and 42% in 2014.
Property damage liability: The average payment for property damage liability claims with totaled vehicles was $6,625 in 2018, more than double the average payment of $3,130 among claims where the vehicle was not totaled. In terms of the share of total claim dollars paid, nearly one-quarter (24%) of the cost of all property damage liability claim payments were due to total loss claims, up slightly from 23% in 2010 and 20% in 2014.
Are older vehicles totaled more often?
Comprehensive: Not surprisingly, older vehicles are more likely to be totaled. Just 2% of vehicles newer than four years old were declared a total loss, compared with 13% for vehicles older than eight years.
Collision: For the claim years of 2010, 2014 and 2018 combined, 34% of collision claims for vehicles older than eight years resulted in a total loss, compared to only 15% of those with vehicles four to eight years old and 8% with vehicles newer than four years.
Property damage liability: For all claim years combined, 26% of property damage liability claims for vehicles older than eight years old resulted in a total loss, compared with only 6% of those with vehicles four to eight years old and 3% with vehicles newer than four years.
What states have the highest totaled vehicle claims?
Comprehensive: States, where a total loss formula is used averaged a lower percentage of totaled vehicles in comprehensive claims. Some of the states with the highest rates of total loss claims rates have low thresholds. For example, Oklahoma, where the total loss threshold is 60%, had the highest percentage of claims with totaled vehicles (18%). In Iowa, the total loss threshold is 50% of the vehicle’s value; 13% of comprehensive claim vehicles there were totaled, the third highest.
Collision: The states with the highest percentage of collision claims with totaled vehicles were Kentucky (28%), Oklahoma (26%), and Tennessee (26%). State regulations in Kentucky and Tennessee set the total loss threshold at 75%; in Oklahoma, the threshold is 60% (one of the lowest in the country).
Liability property damage: The states with the highest percentage of property damage liability claims with totaled vehicles were Montana (19%), Kentucky (18%), and North Carolina (18%).