“Your vehicle is a total loss.” These words are often used to cause immediate controversy between the insured and their insurer. In total loss, the main reason for contention between an insured and their insurance company is that most people believe their vehicle is more valuable than it is.
Although historically a poor investment, a vehicle is very personal. Many people spend a lot of time in their cars every day and become attached to them. Others “trick out” cars and feel that the modifications increase the car’s value.
It might be helpful for some people to hear how insurance companies view this, and how they compensate you for your car if it is determined that it has been totaled. Two things are essential to understand this process: What is a Total Loss? And how is it determined the car’s value. This article will discuss and explain the Total Loss from the perspective of insurance companies.
What does it mean if your insurance company declares your vehicle a total lose? When it comes to determining the loss of your vehicle, there are generally two types of measurements: an obvious total loss and a financial or economic total loss.
Total Economic or Financial Loss
An Economic Total Loss is a vehicle that has its costs exceeding the vehicle’s value, plus any sales tax and your deductible. You may have heard that an economic total loss is determined by a percentage. Most likely, you have heard numbers ranging from 50% to 70% or higher. It is true that this is true. However, it is important that you know that not every state sets a percentage. In fact, the insurance company decides what the percentage will be for those states.
While every insurance company is free to choose this number, 70% is the most common number. What does this mean? Here’s a quick illustration:
Market Value $15,000
Plus tax $ 1,050 (7% in this example).
Sub-total $16,050
Minimum Deductible $ 500
Total Loss Value $15,550
Repairs cost $11,662
The cost of repairs is 75% of the original value
Your insurance company will likely consider your vehicle an Economic Total Loss in the above example. Remember that your insurance company will pay you the vehicle’s value. If the vehicle is damaged or salvaged, they will then sell it to a buyer. Insurance companies will often negotiate contracts with salvage buyers to recover some of the money they paid for the total loss. Your insurance provider would have known that your car had a salvage worth of $3,000 in the above example. When deciding on their total loss, they would add this amount to the $15,550 total, subtracting it from their net cost of $12,550.
Another point worth noting is the fact that your insurance company will include estimated supplemental damages if your car is to be fixed. As an adjuster and claims manager, I have found that there is often additional damage or repairs identified after a car has begun the repair process. These additional damages can often be found after the vehicle has been dismantled and is being reassembled. It is almost certain that additional damages will occur based on visible damage. However, an adjuster will only note the likely possibility of additional damages.
Obvious Total Loss
Obvious Total Loss (OTL) refers to damage to a vehicle that is so severe in terms of repair or putting the vehicle’s structural integrity at risk, that it is declared an OTL. An OTL is one example:
- Fire Damage
- Rollover
- Theft
- Extensive water damage
- Front-end collision with high impact
- T-Bone, or a hard hit to the side if a vehicle is at the center-point
Most cases won’t give a claims adjuster the authority to declare a vehicle an OTL. For both of the two insurance companies that I worked for, a manager was required to approve any call. This can be accomplished in the field with today’s technology by sending photos to a Claims Manager/Property Damage Manager. The cost of repairs is not necessarily included in this instance, but the valuation process is.
This will hopefully help you understand what it means when your car is declared a total loss. This information should be explained to you by your insurance adjuster. However, if you are in this situation, it is a good idea to have a basic understanding.
Marc Berry has over 8 years experience in auto insurance, having worked at 2 of the most respected and reputable insurance companies in the country.
Marc’s site allows you to obtain free auto insurance quotes from one of the nation’s top providers.
