When is a Vehicle Totaled? How to Determine the Value

In serious auto accidents, sometimes the cost of repairing a vehicle is higher than the cost of replacing it. When this happens, insurance companies declare the automobile a total loss. To settle a claim involving a total loss, the car insurance company must determine the value of the totaled vehicle in order to settle the policyholder's claim. The amount of the settlement check the policyholder receives will be determined by how much the auto insurer figures the car is worth. Here, we'll discuss exactly how insurance adjusters define a total loss and how they determine the value of cars generally.

Defining a "Totaled" Vehicle

For auto insurance purposes, a car or truck is considered a total loss when repairing it would cost more than replacing it. In other words, the repair expenses would exceed the vehicle's actual cash value. An insurer might also declare a vehicle totaled if repairing it would be unsafe or if state law requires the automobile to be totaled out because of the extent of the damage.

Before insurers can deem it a total loss, they will need to compare the actual cash value of the vehicle (ACV) with the estimated cost of repairs. To determine these figures, an insurance adjuster will need to come and inspect it. The adjuster will calculate the car's actual cash value as well as the approximate repair expenses based on the observed damage. Insurance adjusters might also factor in the repair estimates you've obtained from approved body shops at the request of your carrier. If the repair estimate is larger than the ACV determined by your car insurer, your car is considered totaled by definition.

How Insurers Calculate Values

Understanding how companies determine car values in general will help explain the valuation process of totaled autos. Providers call the worth of an automobile its actual cash value, which is essentially the original price of the car less depreciation. To determine a car's ACV, the adjuster will compare your car to similar models to calculate its worth. The adjuster will consider factors like condition, rarity, mileage, ZIP code, and special equipment when comparing your car to others of its kind. The data to which your car is compared typically come from local car dealerships, private-party sales, and recent sales of the same vehicle in your area. In most cases, the amount of your car's ACV falls somewhere between its trade-in value and its full-retail value.

With all of the data providers consider in estimating the value of a car, it would be impossible to arrive at an accurate figure by hand, which is why insurers rely on computer programs for assistance. Car insurers frequently invest in third-party computer systems, such as CCC, that can automatically generate an ACV figure after the provider inputs variables such as make, model, mileage, model year, location, etc. Such software programs rely on national databases that often borrow data from body shops, dealerships, and other insurers.

The Valuation Process for Automobiles

Settling a claim involving a total loss requires providers to determine the value of the totaled vehicle, and to do so, they follow much the same process that they would in valuing an intact automobile. They rely on computerized valuation databases of their own or those of third parties that provide information from across the country. The database will tell the insurer how much your totaled car would cost on the used market or how much it would cost to replace.

In order for the car insurer's database to come up with an accurate figure, the adjuster will need to input the vehicle's make, model, year, mileage, location, and pre-accident condition. All of these factors will influence how much the totaled car would cost to replace in your area. These variables are for the most part objective, with the exception of pre-accident condition. Once the adjuster has this information, he/she can either access the database directly or call the details in to the company to get a number. The car insurance company will then write you a check for the value of the totaled auto, and your claim will be settled.