How Auto Insurance Determines Total Loss
Car Insurance Deems a Damaged Car a Loss: What Does it Mean?
Mar 12, 2009
Being involved in an auto accident is bad enough. But a determination by the auto insurance company that the driver’s car is a total loss brings about fear and panic. What happens next? Can the driver afford a new car at this time? Or maybe it’s time to switch auto insurance?
The problem is not the auto insurance. What has happened is that the auto insurance company has made the determination that the cost of repairs exceeds the value of the car. It is at this point that the auto insurance company declares the car a total loss and will not pay the driver to repair it.
Before discussing how auto insurance companies declare a car a total loss, drivers must have a basic understanding of how auto insurance estimates auto repairs.
Auto Insurance: Estimating Auto Repairs
Generally speaking, auto insurance companies estimate total cost of auto repairs in one of two ways: at an auto repair shop or through a claims adjuster.
For example, the driver hits a deer and causes damage to the hood and the engine. The car is smoldering and must be parked on the side of the road. The driver must call his or her auto insurance company to file a claim and to have the car towed to an auto repair shop where an estimate will be performed.
But what if the car is parked at the driver’s residence and has received significant damage due to a hailstorm, tornado, fallen tree, or other act of God?
In this case, the auto insurance company may elect to send a claims adjuster to the scene. The claims adjuster will then proceed to verify the loss after the driver calls the auto insurance company and files an insurance claim.
Auto Insurance: Determining Total Loss
The role of the claims adjuster is to inspect the car for damage and estimate the cost for repair. Claims adjusters are highly trained to spot damage on all parts of the car, even underneath.
After inspecting the car, the claims adjuster determines the initial estimate based on parts and labor. The auto insurance company then takes this estimate and executes an automated claims process using proprietary auto insurance industry computer software.
If the auto insurance believes that the car is a total loss due to damage incurred in an accident or act of God, it performs an evaluation of the car to estimate the actual cash value (ACV). If the cost to repair the car falls between 51 to 80 percent of the car’s ACV, the auto insurance company determines that the the car is a total loss.
What Next after Auto Insurance Deems Car a Total Loss
After the auto insurance declares the car a total loss, two choices are presented to the driver: receive the actual cash value of the car from the auto insurance company toward the purchase of a new car; or keep the damaged car (if drivable) and pay for auto repairs out of pocket.
In conclusion, an auto insurance company declares a car a total loss when it determines that the cost to repair the car exceeds its actual cash value. While the owner can keep the car (if drivable) with the current auto insurance, the auto insurance company will not pay for repairs.
See related articles, "The Basics of Auto Insurance," "How to Reduce Auto Insurance Rates and Save," and "How to Find the Best Deal on Auto Insurance."
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