How Do Insurance Companies Determine Totaled?
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A Total Loss
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When a car is in an accident, insurance companies must determine whether the cost of repairs exceeds the total value of the vehicle and whether to label the vehicle as "totaled." Determining whether a vehicle is totaled varies by company, but generally the assessment follows similar steps.
Determining Total Value
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The insurance company begins by estimating the fair market value of the vehicle. While each insurance company has its own process to determine the value, the vehicle owner is allowed to get an alternate appraisal of the vehicle's value if he thinks the insurance company provides a low estimate. A Kelley Blue Book estimate is good to have on hand, as are prices of similar cars for sale.
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Determing the Cost of Repairs
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The insurance company will then get an estimate for the cost of repairs or require the vehicle owner to get an estimate. Often an insurance company will refer you to a particular auto body shop for an estimate, especially if you were not at fault in the accident and another person's insurance company will be paying for the damages. Some companies require more than one mechanic or auto body shop estimate.
Totaled or Not?
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If the cost of repairs exceeds the fair market value of the vehicle, minus the amount the vehicle could bring in if salvaged (i.e., sold for parts to a scrap and waste metal yard or to a salvage yard), then the insurance company determines that the car is totaled. For example, if repairs would cost $4,300 and the fair market value of the car is $5,000, but the vehicle in its current condition could bring in $1,000 from a salvage yard, then the insurance company would "total" the car because they would only lose $4,000 instead of $4,300. The insurance company would pay you $5,000 then receive $1,000 when the car is salvaged.
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