“Your vehicle is a total loss.” These words, more often than not, trigger immediate disputes between an insured person and his insurance company. The main cause of controversy between an insurance company and an insured in relation to total loss is that most people believe that their vehicle is worth more than it actually is.
A vehicle, although 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 “trick” their cars and inherently believe that their modifications increase the car’s value.
I thought it might help some people if they have heard exactly how an insurance company sees this and how they can compensate you for your car if it were to be determined as a total. There are usually two main things involved in understanding this process: what exactly a total loss is and how a car’s value is determined. In this article I will speak and define a total loss from the perspective of insurance companies.
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 want when it comes to determining this: Total financial or economic loss and Total evident 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, minus the deductible. I’m sure you’ve heard that there is a percentage 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 establish an effective percentage and that for states that do not establish percentages, it is up to the insurance company to determine what it will be.
Although all the insurance companies that are free to set this number are all different, a common number that you will hear is 70%. What exactly does it mean? I thought a brief illustration could help:
Market value $ 15,000
Tax plus $ 1,050 (7% used as an example)
Subtotal $ 16.050
Less deductible $ 500
Total loss value $ 15,550
Cost of repairs $ 11,662
Repairs represent 75% of the value
In the example above, your insurance company would likely result in a total economic loss of your vehicle. One thing to remember is that if you are paid for the value of your vehicle, the insurance company will keep the recovery or damaged vehicle and then sell it to a seller. Most insurance companies have negotiated contracts with rescue service buyers and will use this route to recover part of the money paid for the total loss. In the example above, your insurance provider would know that your car had a recovery value of $ 3,000 (example). So when they make their total loss decision, they take this amount into account and subtract it from the total paid amount of $ 15,550, bringing their net cost to $ 12,550.
Another short point to note is that the insurance company will also take into account the estimated additional damages in case of car repair. From my experience as a regulator and in charge of compensation claims, there are often additional or additional damages / repairs identified when a car starts the repair process. These damages are often detected during the “demolition” phase or after the removal of vehicle parts and the presence of further damages. In many cases it is almost certain that there will be further damage based on visible damage, however, a regulator will write only for what they can see and notice that additional damage is likely to occur.
Total loss evident
A noticeable total loss or OTL is where the damage to a vehicle is so extensive in terms of repair and / or jeopardizing the structural integrity of the vehicle with a repair, that the automobile is determined to be an OTL. Some examples of an OTL are:
- Fire damage
- To roll
- A robbery
- Ample water damage
- High impact frontal collision
- T-Bone or hard blow to the side of a vehicle at the center point
In most cases, a claim regulator will not have direct authority to determine a vehicle as an OTL. The two insurance companies I worked for have requested the manager’s approval to make this call. With today’s technology, this can be easily done in the field by simply sending some detailed photos to a Complaint Manager or Property Damage Manager. In this case, there is not necessarily a cost for repairs, but the evaluation process is the same.
I hope this helps you understand what you mean when you are told that your car is a total loss. Your insurance claim adjuster should explain all of this, however, having a basic understanding will certainly help if you find yourself in this situation.