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Do Car Insurance Companies have a Formula for Totaling a Vehicle?

Updated on April 22, 2011

Insurance companies provide coverage for drivers to take care all kinds of issues, from minor repairs to replacing a car that was totaled in an accident. Immediately following an accident, stress is running high, there are a ton of things to follow up on, and having to go without a car for a while just makes things much worse. On top of that, injuries and other unplanned expenses related to the accident make for a really bad day or week.

Having some insight into how car insurance companies decide when to total a vehicle can help alleviate some of the stress. Car owners feel like they are involved in the process, and have a chance to prepare for the outcome and possibly have a say in the insurance company's final determination.

What Does "Totaled" Mean?

The word "totaled" is used to describe certain cars after an accident. Basically, when a damaged car is worth less than it would cost to repair it, an insurance company considers it totaled. Even though the car may not look very damaged, there may be structural issues or other hidden problems that make the car dangerous to drive.

The full damage to the car can only be arrived at after having a qualified mechanic thoroughly examine the vehicle. The engine may he extensively damaged, even if the car's exterior looks fine. Conversely, a vehicle may show a large amount of damage to the body, yet be in perfect form under the hood. An insurance company will consider both damage to the body and the engine when making their determination of the car's total cost to repair. Engine damage is more critical though, since engine repairs cost much more than bodywork. Additionally, a car that has sustained major frame damage may not be able to be repaired back to a safe, drivable condition.

Take Part in the Determination

A policyholder can help determine the value of his car, even though his insurance company may go through the process acting like they have the only say in the matter. The insured person has the right to find their own mechanic, or choose a mechanic who is affiliated with the insurance company, to evaluate the vehicle as well.

The insurer will have an adjuster review the car, and take a look at the report from the mechanic. The policyholder can choose to work with a mechanic they feel comfortable with, and if they do not agree with the adjuster's or mechanic's assessment, may request another mechanic to review the car. The insured person may need to work as her own advocate and do all she can to get the most money for her car, since an insurance company is simply making efficient business decisions and will do what is necessary to keep its costs the lowest.

The Insurance Company's Formula

The insurance company starts its review with the vehicle's cash value. This is determined by researching how much the vehicle would bring if put on the market right before the accident. This determination of value factors in the vehicle's mileage, upkeep, age, pre-existing damage, condition of the interior and exterior and damage from the accident. Insurance companies, many times, will use the blue book value for the car. Unfortunately, this does not factor in details like lower mileage, better-than-average vehicle condition, or additional options for equipment that was installed in the car and would have made it worth more money.

A consumer can document the value of his vehicle by keeping all work records and receipts for anything that was done to the car. From oil changes and brake pad replacements to larger expenses like engine work or a brand-new transmission, work records help support the vehicle's real value. An additional way to prove a car's value is to look at other cars that are closely comparable and have recently sold. The sales prices for those cars make a perfect benchmark for the insured to compare his car against. With no information to tell them otherwise, an insurance company will choose a value that is easy to support; and it may or may not be correct. The insured has the burden of proving why his car's value is really something other than what the insurance company has determined. Additionally, the policyholder should request the adjuster take them through the worksheet details of the total loss calculations, so all the information including his inclusion of deductible has been made clear.

Replace or Repair Cut Off

Once the insurance company has determined the car's cash value, it makes a final decision on the car's damage based on data from the mechanic and insurance adjuster. Every insurance company has its own process to determine when to repair or replace a vehicle. Generally though, a percentage is used, from 70 to 75%, meaning the cost to repair the vehicle cannot be more than 70% to 75% of the car's determined value. If the repairs cross this threshold, the car will be totaled. Some insurers use different percentages that could range from 50% and up to 80% repair costs before choosing to total a vehicle.

Once a final determination has been made by the insurance company to total a vehicle, it will provide a check to the policyholder for the car's value. The insured can use the money to buy a new car, or do whatever else they would like with it. The totaled vehicle is then sold to a salvage yard, and the proceeds go to the insurer. If the policyholder wants his vehicle, he will need to discuss it with his insurance company as soon as possible. Once the car goes to an auction, it may be difficult for the owner to attempt to buy it. On the other hand, once a car has been totaled by the insurance company, keeping it means a potentially huge project. Additionally, even if the car is repaired it will have a salvage title, which will show on its Carfax report. Salvage cars have much lower values on the market even if they are completely repaired.


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