When is my wrecked car a 'total loss'?

Craig Guillot

You’ve just been in a car accident. You and the other driver are fine, but your car isn’t looking so great and your car insurance company has just declared it a “total loss.” How your insurer arrives at that decision depends on various factors, including how much your car is worth and how much the repairs will cost.

Repair cost vs. vehicle value

An insurer will declare your car a "total loss" when it decides it's too costly to repair. That happens when the salvage value (the price that the insurer can get for your wrecked vehicle) plus the repair estimate is greater than the actual cash value. So, if the salvage value is $1,500 and the cost to repair is $8,000 but the vehicle is worth $9,000, it will be declared a total loss.

In some states, a car can be totaled when the costs reach 70 percent of the vehicle’s value. In other states, an insurer may total a car when repairs are only 51 percent of the pre-accident value.

Paul Quinn, assistant vice president of claims communications at Farmers Insurance, says a claims adjuster will use all sorts of information to make a decision. If the insurer justifies a total loss, you'll have to fill out paperwork and sign over the title of your wrecked vehicle to the insurance company.

An insurer typically will issue you a check for the cash value of the totaled car, minus your deductible. Your car then will go to one of dozens of large salvage yards around the country where it'll be sold for parts. Richard Arca, pricing manager at automotive website Edmunds.com, says that in most cases, an insurer will get 10 percent to 20 percent of the cash value of your vehicle.

"The car could be in a head-on collision, but the interior could still be good. You can recycle all kinds of things, even tires. It's usually body shops looking for replacement parts," Arca says.

Age of car plays a role

John Dicken, director of material damage claims at Mercury Insurance, says 10 percent of insured motorists will file a damage claim during the term of a policy; of those, only 1 percent will result in a total loss.

An insurer may prefer to total a car if the numbers are close, as unforeseen damage can be discovered when repairs are under way. Dicken stresses that estimates can rise significantly if a mechanic discovers more problems.

"There could be supplemental damage down the road," Dicken says, "and there could be more inner structure repairs required that would increase the cost."

Many drivers may not understand why an insurer is totaling a car for what seems like little damage. The age of a car has a prominent role.

With today's high cost of parts and labor, a 10-year-old car, even one in mint condition, could be declared a total loss in a minor fender-bender. Nowadays, it can cost up to $1,000 to replace a front plastic bumper.

"Older vehicles get totaled more easily because their cash value is going to be a lot lower and it doesn't take much to rack up big bills," Dicken says.

Some insurers will negotiate

When an insurer declares your vehicle a total loss, there may be room for negotiation. If in doubt, a motorist should look closely at the value that the car insurance company has assigned to a totaled car.

“The customer has the option to say they don’t agree with the values and point to other comparables. Most insurance companies will take a look and work with you,” Quinn says.

In other cases, a driver may not be able to confidently replace his car with money from the car insurance company. For instance, a driver may have had a car for nine years and now only has $2,000 of insurance proceeds to buy another car. That means the motorist will have to take a chance on a similarly priced car that may not be as reliable or will have to upgrade to a more expensive car.

“A lot of people trust their vehicles and just want it repaired because finding another vehicle (at a similar price) is a challenge,” Arca says.

In that case, some consumers may be able to keep a totaled car and try to cover the repairs themselves, but they’ll be stuck with a salvage title. In other words, the state department of motor vehicles knows it was declared a total loss, and the car's resale value will be slashed.

An owner of a newer car might want to lobby for totaling the car if there's considerable damage. That’s because accident history can severely dent a car’s value if it isn't totaled.

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