insurance total loss

What does total loss mean?


About one in seven car accident claims results in a “total”. No doubt that almost everyone has heard about “totaled” vehicles. However, do you actually know exactly what it means and how total loss is calculated? 

The most common definition of total loss is: “total loss occurs when car damages extent that estimated costs of making repairs exceed its actual cash value.” This is where the actual cash value is the car’s pre-accident market price. The insurance companies take into account the total repair costs, including labor, new parts, and rental car reimbursement. A total loss also applies if your car is stolen, so long as you have comprehensive coverage.

About half of the states, including California, Delaware, Georgia, Pennsylvania, go by the total loss formula described above. Although, some states use the so-called “total loss threshold” which means that damage only needs to exceed a certain percentage of a car’s value. The minimum 60% is applied only in Oklahoma, then goes Nebraska with the threshold of 65%. In most of the states, the total loss threshold is about 70 – 80%. This method of calculation is used in Florida, Michigan, South Carolina, Oregon, New York, and others.

Let’s see how it works. If you have a Tesla Model S valued at $48,454 and get into a car accident in Nebraska, at least 65% of damage which is $31.495 would qualify the car as a total loss and you’ll get compensation. Meanwhile, if the collision takes place in Colorado, California, or Pennsylvania, the damage costs should be no less than $48,454 to apply for compensation. One way or another, you have a couple of options even if your car is deemed as a total loss.

Except in extreme circumstances, a vehicle that has been written off is not completely worthless. It may even still be drivable sometimes. Depending on the extent of damage, a vehicle gets either junk or salvage certificates. Junk cars must be dismantled by an auto wrecker and sold as parts or scrapped. Salvage vehicles can be returned to marketable condition and be put back on the road after a thorough repair and government-approved inspection. Therefore, most vehicles designated as a total loss by insurance companies are sold from auctions. They can be sold to the public, auto dealers, brokers, or wreckers. 

Buying a totaled vehicle at salvage auctions like Copart or IAAI could be a more cost-effective and environmentally friendly solution. However, if you decide to get one, run a VIN lookup and take a look at what you will get with the ClearVIN VIN history report. Sometimes, lots have hidden damages or prior entries at auction. ClearVin report contains all insurance total loss records, title brands, odometer events, auction sales history, and other relevant motor vehicle records, providing a comprehensive car history overview you can’t get from a visual inspection or even a test drive.

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