What does it mean when my car is declared a total loss?
Accidents happen. Weather events happen. You have insurance, so you’re covered (Spoiler alert – next week I’ll go through the different kinds of insurance there are and what they each cover, so stay tuned for that!). But what happens when your vehicle is damaged and the insurance company declares your vehicle a total loss? What does that even mean – especially when it’s just cosmetic hail damage and the car drives normally? Here is an overview of how and why your vehicle is declared a total loss. Since I live in Denver, I’m going to use Colorado as my main example for today.
How does my insurance determine that my vehicle is a total loss?
Every insurance company is different, just as each state is different. There are two different ways that insurance companies determine the value of your car. The first is what’s called a “Total Loss Threshold” – you can find the threshold for each state here. The total loss threshold is the point at which the insurance company is legally required to declare the vehicle a total loss and apply for a salvage title for the vehicle. There are 28 states who have individually chosen a threshold; some are at 100% like Colorado and Texas, others are lower like 75% in New York. This is a legally required maximum threshold percentage; meaning the insurance company can pick a lower threshold percentage and declare your vehicle a total loss at the percentage of their choosing, as long as it does not exceed the state mandated percentage. For instance, in CO our threshold is at 100% but some insurance companies will declare a vehicle totaled at the salvage value of 40% – that’s 60% of your car’s worth we’re leaving out.
The other 22 states, like Hawaii, who do not have specific percentages set for the total loss threshold use a “Total Loss Formula” to determine the value of the vehicle. This is determined by totaling the cost of repairs and the salvage value of the vehicle. If that total equals or is higher than the actual cash value of your vehicle (before the damage occurred, of course), your car will be deemed a total loss. If the total cost of repairs plus your salvage value is less than the actual cash value, you should be able to have the repairs covered by your insurance company.
There are many insurance companies who insure drivers in different states, and who doesn’t love a good road trip across the border lines? For these reasons, a lot of insurance companies have a set percentage for their total loss threshold lower than what states mandate. This way, no matter where the damage or accident occurs – down the street or across state lines – the company policy is the same. When I buy my next car and reevaluate insurance companies, I’m definitely going to be asking about the threshold – are you?
What does “salvage value” mean, and why do I need a salvage title?
The salvage value of your vehicle, in a nutshell, is the amount of money (or value) your car would be worth if the parts and frame were sold to a salvage yard where they take out functioning parts of cars and sell them as replacements for other cars – this is also one way that after market parts are found (sidebar – here at Capital Dent Masters we only use original, new parts from the manufacturer). There are many factors that go into calculating the exact salvage value of a vehicle; including year, make, model, mileage, and any previous damage. I always like to have a second opinion, but with an insurance claim that isn’t always an option – so here’s how to calculate the salvage value of your vehicle so that you can be that second opinion, and also have a full understanding of the details before negotiating with your insurance company.
A salvage title is the new title to your vehicle that is issued by the DMV after the vehicle has been determined a total loss by your insurance company. If you choose to buy or keep a vehicle with a salvage title, that does not mean the title is a “salvage title” forever. In many states, after the vehicle is repaired and passes inspections by the DMV, a regular title will be reissued. The new title will be “branded”, meaning it was once a salvage but has been revived, for any future owners. Check your local DMV to know the fine print on how your state handles salvage titles and vehicles.
What are my options when my car is deemed a total loss? What should I do first?
First and foremost, get some estimates from body shops before getting your insurance involved. Or, research the shops in your area to find one like us, Capital Dent Masters, who will assist you with your insurance claim. Once your car is deemed a total loss, you have two options – sell it to the insurance company, or buy it back from the insurance company. Here’s a quick run down of those two options and what they entail. Remember, each situation is different and each insurance company sets their own company specific details in the process. That being said, ask questions!
You should always ask for a copy of the appraisal from the insurance adjuster. Compare it with an estimate from a body shop. Make sure the appraisal has all of the special features and add ons that your vehicle has, as well as the overall condition and mileage – this has a drastic effect on the total value! Compare the actual cash value of your vehicle on sites like Kelley Blue Book and the National Automobile Dealers Association to the one your insurance company is using.
If you still feel like you are not being offered the correct amount, you can always appeal the decision. Just don’t accept any offers or checks until you’ve thoroughly vetted your options and compared the numbers. If you’ve got a loan out on the car, be sure to check that as well – your loan payment will likely remain even if your vehicle is totaled. Gap insurance is also a detail to take into consideration, which can help you pay the difference in your check from the insurance company and the loan amount (but more on that next week).
Selling your car to the insurance company.
In this case the insurance company will have you file paperwork, putting the car back into their name. They’ll want the title, the keys, lean information and any other information they feel is pertinent per company policy. Usually the check will be for the actual cash value of your vehicle (before the damage occurred), minus your deductible. Some insurances will cover a rental car for you for 30 days, while you find your new ride.
Buying your car back from the insurance company.
If you prefer to keep the vehicle you had, most insurance companies will let you buy back your vehicle. The insurance company will write you a check for an amount that is usually calculated by taking the actual cash value of the car, and subtracting both your deductible as well as the salvage value of your vehicle. It’s nice to have your friend back with all of it’s sentimental attachments, but the repairs now fall squarely onto your shoulders. If you are planning on selling the car in the future, keep in mind that the value of the vehicle will be significantly less because it once held a salvage title. Have a teenager around? This is the perfect car to pass along (once fixed & inspected).
Where we come in.
At Capital Dent Masters, we are on your side. Our estimates are free, and we have claim specialists who will walk you through and handle the insurance process for you. If the damage meets your insurance company’s total loss policy number, but we feel like it is still repairable, we will talk to the insurance adjuster and see what we can do in order to keep your vehicle from being declared a total loss. While it is not our decision whether or not the vehicle gets totaled, it never hurts to have someone else in your corner backing you up. During the repair process we will handle all communication with your insurance company, taking the stress off of your shoulders. On top of high quality professional repairs, you get high quality professional customer service – ‘cause who doesn’t want to have their cake and eat it too?