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Insurance companies deem a car a total loss when the cost of repairs exceeds a certain percentage of the car’s actual cash value (ACV) before the accident. This threshold varies across companies and states.

After an accident, an insurance adjuster will assess the damage to the vehicle to estimate repair costs. The adjuster will also determine the car’s actual cash value (ACV) before the accident. ACV is the vehicle’s market value, considering its age, mileage, and pre-accident condition.

If the estimated repair costs exceed the predetermined percentage of the car’s ACV, the insurance company will declare it a total loss. 

Factors leading to total loss decision

There are several factors that can influence an insurance company’s decision to declare a vehicle a total loss. Some of them are mentioned below

  • Repair costs – If the estimated repair costs approach or exceed the predetermined percentage of the car’s value, it’s more cost-effective for insurers to declare it a total loss.
  • Safety and structural damage – Extensive structural damage or safety concerns might render the car unsafe, even if repairs are possible.
  • State regulations – Regulations in your state can influence the total loss determination process.

These factors are considered to determine whether repairing the vehicle is economically viable or if it should be declared a total loss.

The total loss process

The process of declaring a car a total loss involves several steps, typically handled by your insurance company after an accident.

  • Claim filing: After an accident, you’ll need to notify your insurance company and file a claim. Provide all necessary details regarding the incident.
  • Vehicle inspection: An insurance adjuster will inspect the vehicle to assess the extent of the damage. This inspection is important for determining the repair costs.
  • Estimating repair costs: The adjuster will estimate the cost of repairing the vehicle, often with assistance from an auto repair shop.
  • Determining vehicle value: The adjuster will calculate the actual cash value (ACV) of your vehicle prior to the accident. This value is typically based on factors like the vehicle’s make, model, age, mileage, and condition.
  • Comparison and decision: The insurance company will compare the estimated repair costs to the vehicle’s ACV. If the cost of repairs meets or exceeds a certain percentage of the ACV, the vehicle will be declared a total loss.
  • Settlement offer: The insurer will offer you a cash settlement based on the ACV of your vehicle. This amount is intended to enable you to purchase a replacement vehicle of similar type and condition.
  • Payment: Once the paperwork is completed, the insurance company will issue a payment to you. If you have a loan on the vehicle, the insurer may pay the loan balance directly to the lender.

This process can vary slightly depending on the specifics of your insurance policy and state laws, but these are the general steps involved in handling a total loss vehicle claim.

Final thoughts

Insurance companies decide to total a car when the cost of repairing the vehicle is deemed uneconomical compared to its value before the accident. This decision is based on a calculation where if the estimated repair costs exceed a certain percentage of the car’s actual cash value (ACV), depending on the insurer and state regulations—the car is declared a total loss.