by Sheri O’Donoghue, Claims Department Manager
The global pandemic has drastically reduced travel and the number of automobile accidents. As states begin to reopen and Americans begin to travel again, your risk of an automobile will significantly increase. Being involved in an automobile accident is stressful enough but when the insurance company tells you your car is a total loss and not repairable, it may cause additional frustration and financial hardship. You pay your premium to the carrier and now they tell you the value of your vehicle is less than the cost of repairs and your means of transportation is no longer a viable option.
WHAT IS A TOTAL LOSS?
A vehicle is deemed a total loss when:
- all repair costs equal or exceed the vehicles pre-loss fair market or actual cash value; or
- the repairs reach the total loss threshold set by the state; or
- no parts are available; or
- the vehicle cannot be repaired safely
The fair market value of your vehicle refers to the current price you could sell your vehicle if you sold it “as is”. Ask yourself, “What would someone pay for my car based on the type of vehicle, the current overall condition, mileage and options included in my car in the geographical area.” It differs from a trade-in at a car dealer, as this is what the buyer is willing to offer you in exchange for purchasing an item.
WHY WON’T MY CARRIER PAY FOR THE TOTAL REPAIRS IF THE CARRIER DECLARES THE VEHICLE A TOTAL LOSS?
Insurance carriers are legally obligated by state government to follow total loss guidelines. They must consider a vehicle “totaled” once the total cost of repair reaches the total loss threshold; generally between 70-75% of the fair market value of the vehicle.
WHAT HAPPENS NEXT?
When involved in an accident, your insurance carrier sends an appraiser to estimate the cost of the repairs. As the appraiser inspects your vehicle, their estimating system alerts them if the estimate reaches the total loss threshold. When this occurs, they begin the process of establishing the fair market value of the vehicle, also known as the total loss value.
HOW MUCH WILL I GET FOR MY VEHICLE?
Insurance companies work with approved vendors to provide a fair market value of your vehicle prior to the accident. These vendors compare your vehicle with similar vehicles located in the area to determine the total loss value of your vehicle. They use databases with millions of vehicles. The values provided are based on what similar cars are selling for in the market today. Where meaningful differences exist, they make adjustments based on side-to-side comparisons of your vehicle and others to arrive at your total loss value. Insurance companies will not utilize Kelly Blue Book, Auto Trader, or NADA as these resources only provide a general price and do not take into consideration the specifics of your vehicle. The valuation company used may differ by insurance company but they must be consistent in the source they use to value all passenger type vehicles. Specialty vehicles such as box trucks, large commercial vehicles and trailers may require a different method of valuation. General maintenance of your vehicle (oil changes, brakes, etc.) does not add value to your vehicle. However, if you recently purchased a new engine or transmission that affected the mileage life on your vehicle, you should provide supporting documentation to the insurance adjuster for consideration.
WHAT DO I DO IF I DISAGREE WITH THE VALUE?
After discussion with the adjuster and all adjustments made, if you disagree with the valuation, most carriers will review comparable quotes you obtain through dealers and private sales. These quotes will need adjusted to be comparable to your totaled vehicle. If you cannot arrive at an agreement after submitting your quotes, you may invoke the appraisal clause in your policy contract. This clause allows you to hire an appraiser to perform an evaluation at your expense.
HOW DOES THE PAYMENT PROCESS WORK?
Once you have an agreement with the insurance carrier, you have the option to receive payment for the total agreed value of the total loss less any policy deductible, or retain ownership of the totaled vehicle.
If you elect not to keep the vehicle, the owner of the vehicle forwards the Certificate of Title to the insurance carrier. If you have a loan on the vehicle, the carrier will contact the bank for the payoff amount. If the vehicle value is less than the amount owed the bank, the owner must work with the bank to determine how to pay the remainder. The carrier first pays the bank any amounts owed on the vehicle and the remainder is paid to the titled owner.
DO I HAVE ANY OTHER OPTIONS?
As the owner of the vehicle, you may choose to repair the vehicle and pay for the additional costs between the value paid by the insurance company and the total cost of repair. If you decide to keep the vehicle, the insurance carrier determines how much they owe you by deducting the value of the vehicle after the accident (salvage value) from the value of the vehicle before the accident. You must also comply with the state requirements for salvaged vehicles and apply for a salvage title. You may not drive your vehicle until repairs are completed and it passes a state inspection. Once inspected by an authorized party, you may then obtain a reconstructed title allowing you to maintain insurance on the vehicle. Your insurance agent can confirm if your carrier will continue to allow full coverage (collision and comprehensive) coverage on your repaired vehicle.
Before making a determination on whether you should retain ownership of your vehicle, please refer to the state links below to review the requirements.
Although each carrier has their own internal process for the handling of total losses, as your insurance agent, we can help you navigate through the total loss process and explain your options. Please do not hesitate to contact our office with any questions.