"Your vehicle is a total loss." These remarks most often generate an immediate controversy between an insured and his insurance company. The main cause of controversy between an insurance company and an insured with regard to total loss is that most people feel their vehicle is worth more than it actually is.
A vehicle, while 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 'cheat' their cars and inherently feel that their modifications improve the value of the car.
I thought it might help some people if they heard exactly how an insurance company sees this and how they're going to compensate you for your car if it's taken as a total. There are generally two main things involved in understanding this process: What is a total loss and how is a car's value determined. In this article, I will discuss and define a total loss from an insurance company perspective.
So what exactly does it mean when your insurance company considers your vehicle a total loss? In general, there are two types or measures if you will when it comes to making that determination: total financial or economic loss and total obvious loss.
Total financial or economic loss
A vehicle is often declared a total economic loss when the cost of repairs exceeds the value of the vehicle, plus sales tax, less your deductible. I'm sure you've heard that a percentage is used to determine if a car is a total economic loss. You've probably heard numbers from 50% to 70% or more. This is true, however, it is important to know that not all states set an actual percentage, and for states that don't set percentages, it is up to the insurance company to determine what it will be.
While all the insurance companies that are free to set this number on their own are all different, a common number you will hear is 70%. What does this mean exactly? I thought a quick illustration might help:
Market value $ 15,000
Plus taxes $ 1050 (7% as an example)
Subtotal $ 16,050
Less deductible $ 500
Total value of loss of $ 15,550
Cost of repairs $ 11,662
Repairs represent 75% of the value
In the example above, your insurance company would likely determine your vehicle as a total economic loss. One thing to remember is that if you get paid the value of your vehicle, the insurance company will hold the salvaged or damaged vehicle and then sell it to a seller. Most insurance companies have negotiated contracts with rescue buyers and will use this opportunity to recover some of the money paid for the total loss. In the example above, your insurer would know that your car had a salvage value of $ 3,000 (example). So when making their total loss decision, they would take that amount into account and subtract it from the total amount paid of $ 15,550, which would bring their net cost to $ 12,550.
Another brief point to note that should be noted is that your insurance company will also take into account any additional estimated damage should your car need to be repaired. In my experience as an expert and claims manager, there is often additional or additional damage / repairs identified once a car begins the repair process. This damage is often discovered during "disassembly" or after removing parts from the vehicle and additional damage is more noticeable. In many cases, it is almost certain that there will be additional damage based on the visible damage, however, an expert will only write for what they can see and note only additional damage. are probable.
Obvious total loss
An obvious total loss or OTL is in which the damage to a vehicle is so significant in terms of repairing and / or endangering the structural integrity of the vehicle with a repair, that the car is considered an OTL. Some examples of OTL are:
- Fire damage
- Significant water damage
- High impact frontal collision
- T-Bone or hard hit on the side of a vehicle at midpoint
In most cases, an adjuster will not have the direct authority to determine that a vehicle is an OTL. Both insurance companies I worked for needed a manager's approval to make this call. With current technology, this can be done easily in the field by simply sending detailed photos to a claims or property damage manager. In this case, there is not necessarily a repair cost but the evaluation process is the same.
Hope this helps you figure out what is meant when you are told your car is a total loss. Your claims adjuster should explain all of this to you, however, having a basic understanding will certainly help you if you find yourself in this situation.