Some drivers mistakenly believe that a total loss on a vehicle means the car is unrepairable. In fact, when your insurance company totals your vehicle, it means the adjuster believes the cost of repairs exceeds an assigned threshold of the car's value, and therefore is not cost-effective to fix.
Determining Total Loss
State laws impact the percentage at which a vehicle is considered totaled. However, Progressive Insurance notes that a common threshold is when repair estimates exceed 80 percent of the market value of the car. The Claims Journal noted that an insurance company might declare a car totaled if repairs are $3,000 and the vehicle is worth $4,000. A key result of a declaration total loss is that the car is assigned a salvage title, which alerts future buyers that it has been in a severe accident.
When the vehicle is just below the total loss threshold, drivers can take a direct payment for the repair estimate and then sell the car to a shop or private buyer who can fix it up for resale.
The amount you receive for the totaled vehicle is what your insurer deems the actual cash value. A common formula for ACV is the cost of repairs plus the salvage value. Another approach used by some insurers is to determine the market value of the car if it were restored to its pre-accident condition. In this case, the vehicle's mileage, age and condition are taken into account. Customers can appeal an ACV evaluation by providing documentation of why the assessed value is low.
After you agree to a total loss declaration, you sign the necessary paperwork. The insurance company issues your check and takes possession of the car. If you have a deductible on your policy, that is deducted from your payout. The entire process can be completed in a couple of days, but could take longer depending on when the accident occurred, whether other parties were involved and whether you dispute the original value.
Money you owe on a loan is paid off first with your settlement. The process gets complicated when you owe more than the total loss amount. For example, if you owe $5,000 and your settlement is $4,000, you are short $1,000. You may have to pay this amount out-of-pocket. If you have gap protection, that policy pays the difference between your loss settlement and what you still owe.