How is my car determined a total loss?

Written by gregory hamel
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In the car insurance industry, a total loss for a vehicle occurs when the car gets into an accident that causes damage to an extent where it's not economically viable or perhaps not even possible to repair the vehicle. In order to determine economic viability of repair, the insurance company must estimate the actual cash value of the vehicle and then compare that to the cost associated with repairing it. If the cost of repairs, labour, rental reimbursement and the car's salvage value exceed the actual cash value of the vehicle, it will be considered a total loss. (If it's declared a total loss, the insurance company will take the wreck and sell parts that are not damaged.) Because there are several costs that factor into the insurance company's assessment aside from the repair cost of the vehicle, it's common for a vehicle to be considered a total loss even if the repair costs themselves are only 70 per cent to 90 per cent of the vehicle's actual cash value.

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Determining Actual Cash Value

One of the two main estimates that factor into the determination of a total loss (and the ultimate amount of money the insured driver is entitled to) is the car's actual cash value, or ACV. An insurance company will determine a car's actual cash value by sending out a representative to inspect the wreck and list things including mileage, the apparent condition of the vehicle before the crash, and additions or modifications to the vehicle that would alter its value. Using this information, companies may consult a variety of informational sources, such as price guides including the Kelly Blue Book or online price sites, dealer price information, and actual sales of similar used vehicles. Because it's in the insurance company's best interest to give as low a quote as possible for actual cash value, it's wise for any driver in an accident to do some research to make sure she's not being lowballed.

Determining Repair Costs

A vehicle's repair cost is the other main estimate used to determine a total loss. This can be much more difficult to assess than ACV. Typically, an auto insurance company will send a car wreck to an allied bodyworks garage to assess the repair cost of a vehicle, because sending the car to a normal bodyworks garage with no ties to the auto insurer can create a conflict of interest. The reason for this conflict is that the bodyworks garage knows if it quotes a high repair cost, the car is more likely to be declared a total loss--meaning the repair shop will not ultimately be contracted to do the repair. On the other hand, bodyworks garages that do estimates for insurance companies may artificially inflate their repair cost estimates because they might have other financial arrangements with auto insurers (such as receiving money for salvaging the vehicle for parts). Similar to ACV, a driver should attempt to get a third-party assessment of the vehicle damage, unless that damage is so great the car is certainly a total loss or so little that it's nowhere near a total loss.

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