How Do Insurance Companies Value Totaled Cars?

It's important to understand how insurers determine total losses, how insurance companies decide to total a car and how they determine its value, and what value do they assign to them

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Feature Writer Rachel Bodine

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: Jun 10, 2022

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Things to Remember...

  • Insurance companies often declare damaged vehicles “Totaled,” if the cost to repair your vehicle is higher than its ACV
  • A totaled declaration often results in a smaller insurance check
  • Insurers use a formula and several other factors to make totaled declarations and value the damaged vehicl

Learning that your insurance company won’t foot the cost of repairs following a car accident can add insult to injury in an already stressful situation. Unfortunately, insurers deem damaged vehicles “Total Losses” all the time.

When they do this, they offer vehicle owners an amount that is equal to or less than the Actual Cash Value of the damaged vehicle. This amount is often a fraction of what is necessary to replace it.

How do insurance companies decide to total a car, though, and what value do they assign to them? It’s important to understand how insurers determine total losses to avoid surprises and to get the most money for your car.

The Total Loss and Standard Loss Formulas

Generally speaking, if the insurer would have to pay more money to repair your vehicle than to replace it, it will declare your vehicle a total loss. To avoid making rash decisions, insurers use a totaled car value calculating formula, which involves adding the salvage value to the total cost of repairs, less the deductible. If the sum is greater than the ACV, insurers will likely declare a vehicle a loss.

Though there are other means of calculating the value of a damaged vehicle — including the Salvage Value and Replacement Cost Value (both of which are more forgiving than the ACV) — most insurers use ACV when valuing claims.

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What is Actual Cash Value?

ACV, which many refer to as “fair market value,” does not refer to the actual value of your vehicle. Rather, it refers to the cost to fix or replace your vehicle minus depreciation.

When valuing your vehicle and determining whether to pay for repairs, the adjuster assesses your vehicle’s pre-accident condition, then researches how much those cars are going for in the current market. Next, they calculate the cost of repairs. If the adjuster determines that the cost of repairs outweighs the value of your pre-accident vehicle, your policy will not cover repairs. Instead, your insurance company will offer you a check in the amount of the calculated ACV and declares your vehicle a total loss.

How do insurers determine ACV?

Insurers use various sources to calculate the Actual Cash Value of a vehicle. Those include but are not limited to the following:

As you can imagine, differing sources often yield drastically differentvalues.

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Can you negotiate ACV?

Though it may seem unfair to you to receive a totaled determination, know that you do have some control over how much money you receive from the insurance company, as ACVs are negotiable. For this reason, it is important that you understand your car insurance and take additional steps to secure your rights to the maximum amount of compensation.

If you do not wish to argue with the totaled determination but want to get more for your vehicle than what the insurance company offered, research vehicles of similar makes, models and mileage in your area. Collect price data and, if values are significantly greater than what the insurance company offered you, present them to the adjuster.

You should also get to work gathering repair quotes. Insurers typically gather quotes from a small handful of shops, which may inflate their rates. If you can get lower estimates and higher sales values than what the insurer could gather, you may succeed in garnering a larger check.

If you hope to undo the totaled determination, there are steps you can take to increase the value of your vehicle and decrease the total value of your losses:

  • Obtain an independent appraisal
  • Notify the adjuster of value-boosting aftermarket installations 
  • Review prices of similar vehicles in your area
  • Gather repair and maintenance estimates
  • Provide proof of low mileage
  • Inquire about errors and deductions on values

Unfortunately, even with this extra effort, you often cannot avoid a totaled determination. For example, even if the damage is minimal, if it involves flood damage, insurers will probably declare your vehicle a Total Loss. This is because water often leads to rust, engine damage and safety issues.

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The Total Loss Threshold

Another factor that may affect an insurer’s decision to declare a vehicle “totaled” is the Total Loss Threshold. The TLT is essentially a percentage of the vehicle’s fair market value before an insurance company can declare it “Totaled.” If a vehicle meets this threshold, the company can issue an automatic “Totaled” declaration.

In some states, state law dictates what this threshold is. In others, however, there is no such law. In these cases, the company sets the TLT. It is neither better nor worse for states to set the TLT, as in some states, it is as low as 70% of the vehicle’s ACV.

It is also important to note that when damage compromises a vehicle’s safety, an insurance company may not even consider repairs. So that you do not run into any surprises, it is important that you understand your company’s policies before you get into an accident.

How much money will you get for a totaled vehicle?

If you cannot avoid a totaled declaration, your next question may be, how much can you get for your salvaged car? Unfortunately, the answer depends on the type of policy you have: a replacement value policy or a full value policy.

Replacement value policies tend to pay out far less than full value policies. Under a replacement value policy, an insurer is only obligated to pay you enough money to help you find an exact replica of your damaged vehicle. This means a vehicle with the same or similar amount of mileage and in the same or similar condition.

Under a full value policy, however, an insurer must pay you what your vehicle costs at full market value, regardless of the price Kelley Blue Book or other sources cite.

Final Considerations for Totaled Vehicles

If your insurance company offers you an erroneously low amount of funds after declaring your vehicle a total loss, you can take steps to increase your pay out. To avoid unpleasant surprises following an accident, do your homework ahead of time, and be sure to understand each aspect of the policy you ultimately buy.

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