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 will be 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.
Total loss: What does it mean? What is a total-loss threshold?
This is the point where an insurer must legally declare a car totaled and apply for a salvage title. 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 percent of its value is totaled in New York but considered repairable in Texas, where the threshold is 100 percent.
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 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:
Older cars equals more totaled vehicles
The number of cars being totaled has been increasing for years, jumping from about 9 percent of all vehicles for which an appraisal was written in 2000 up to almost 18 percent (17.8) in 2017 according to data from CCC Information Services.
While a number of factors have contributed to rising total loss numbers, one of the biggest drivers is the average age of vehicles cruising the streets these days.
According to the U.S. Department of Transportation the average age of vehicles out on the road in 2017 was 10.5 years. The number goes even higher if you are driving a pickup which average 13.6 years old compared to 11.2 in 2009. SUVs came in at 8.5 years old and cars hit 10.3.
Older cars tend to hit the total loss threshold quicker than a new vehicle. Claims expert CCC Information Services offers the following example in their What's Driving Total Loss Frequency Report:
- "The average repair cost for a one year old vehicle is about $3,300, and the average vehicle value of one year old vehicles was over $25,000. Less than seven percent of one year old vehicles overall are deemed a total loss.
- Compare that to a vehicle that is between 10 and 15 years of age where the average repair cost is $2,000 and the average vehicle value is just over $6,300. Within vehicles aged 10 to 15 years of age, 32 percent are deemed a total loss."
- This breaks down to almost four times as many older vehicles being declared a total loss when compared to newer ones. With the average age of a vehicle being over 10 years old it is easy to see why total loss numbers are climbing.
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.
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 percent. However, if you live in Colorado it would take $5,000 in damage, as the threshold in the Centennial State is 100 percent.
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 simply 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 damage to your car.
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.
That may be why total-loss thresholds seem to have little bearing on the actual number of total-loss claims in a state. The Midwest has some of the lowest thresholds, which should lead to a high number of total loss claims, but according to CCC Information Services, the region has the second-lowest percentage of total loss claims at 13 percent.
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 percent annually. The increase for an at-fault bodily injury accident averages 32 percent.
If your rates 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 of your insurance value and the amount to pay off your loan," advises Steve Bentz, vice president of claims at Avinew.
If your totaled a vehicle has a loan or lease on it, you may end up owing more than the insurance payout. Cars depreciate quickly and most new vehicles lose about 10 percent of their value as soon as you drive off the lot according to CarFax. This number can jump up to 20 percent 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 that is 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 insurers number, challenge it. Most appraisers will bump their offer up $500 just for asking.
"Ask for their evaluation and review it to make sure all your car's features, mileage, and condition is 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.