How Does the Insurance Company Decide if My Car is a Loss?
You may have been involved in a serious car accident and by the looks of the damage to your car, you may assume that the insurance company may junk your car, or in insurance terms deem it a write-off. Many times a car with serious damage will be written off as a loss but a car with very little damage may also surprisingly be written off as a loss. So how do insurance companies figure out if your car is going to get fixed or go to its final resting place at the junk yard? Below we’ll explain some of the different factors and formulas that insurance companies use to make that determination.
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How damaged does my car have to be for the insurance company to write it off?
Reading: When will an insurance company write off a car
Your auto insurance company may consider your car a loss for a variety of reasons. One of the most common reasons would be if the price to repair the damage to your vehicle is higher than the actual cash value of the car.
Actual Cash Value (ACV) is the fair market value of your car plus title costs, registration fees and sales tax. Fair market value is the amount you would expect to pay if the vehicle were purchased from a seller today.
Although the most common reason to write off a vehicle is that the damage exceeds the cost of replacement, the damage does not have to be very great to be declared a total loss.
In many states, insurance companies use a formula called a total loss threshold (tlt) that dictates whether the damage to the vehicle is high enough to result in a write-off. tlt is a damage-to-value ratio that can range from 50 to 100 percent in different states.
It’s important to talk to your insurance agent to check your state’s laws regarding the total loss threshold so that even if you do need to file a claim, you feel comfortable with the settlement.
total loss formulas
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Not all states use a total loss threshold (tlt). Some states require insurance companies to use a total loss formula (TLF). tlf is an equation that helps the insurance company determine if the car is worth repairing or if salvaging the vehicle is the best option. this equation is especially useful when the car in question is older and repair costs are still high.
total loss formula is cost of repairs + salvage value after loss > effective present value. therefore, if the tlt or tlf is not complied with, your car will be cancelled. you will not have the option to appeal or negotiate the decision.
It is only practical for the insurance company to write off a vehicle if the repairs and salvage cost after loss are higher than the actual cash value (ACV) of the vehicle.
If vehicle repair costs are simply not affordable based on the damage sustained, you should expect the insurance company to decide your vehicle is a write-off.
What happens if the insurance company writes off my car?
If the auto insurance company has declared your car written off, they will notify the department of motor vehicles, who will then issue you a salvage title.
There are different salvage classifications used by the dmv and they are based on the reasons the car was declared inactive. It’s important to note what salvage classification is listed on the salvage title if you plan to keep and insure your vehicle after loss.
Below is a list of the most common salvage classifications.
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Rebuilt Salvage Vehicle: This classification is used for a vehicle that has sustained damage above the total loss threshold (tlt) but has been repaired or rebuilt for title and registration.
rebuilt vehicle: this classification is used for a vehicle whose original construction has been altered with additional or replaced parts that did not come as standard.
Junk Vehicle: This classification is used for a vehicle that is inoperable or unsafe to drive on public streets. the vehicle is used for parts and cannot be re-registered.
Vehicle Flooded: This classification is used for a vehicle that has been fully or partially submerged in water and has been classified as a vehicle flooded if the body, transmission, or engine is severely damaged.
Stolen Vehicle – This classification is used for stolen vehicles that are often a total loss because they are never recovered.
How do I treat a total loss claim?
You’ll need to file a claim if you’ve been in an accident, find your vehicle vandalized or stolen. The type of insurance coverage you have will determine whether or not your insurance company will cover repairs. if you have comprehensive or collision coverage, physical damage will be covered in the event you are in a collision or file any other non-collision claim.
It’s always good to be well informed when filing claims. Look up the value of your vehicle, review your appraisal, know your rights when it comes to filing a claim, and research the laws in your state if you’re not convinced your car is a loss. You can always contact your insurance agent and they will be more than happy to guide you through the process.
If you’d like to learn more ways we can help you save money on your auto insurance, please contact us or get a quote online.