Total Loss: How Insurers Decide and How to Dispute the Value

General information, not legal advice. Insurance policies and state laws differ. Check your own policy, and for a legal question ask a licensed attorney or your state insurance department.

A car is a total loss when it can't be repaired, or when the repair would cost close to or more than the car is worth. The insurer then pays the car's actual cash value instead: what a comparable car would cost right before the crash, minus your deductible on your own policy. The NAIC model rules, and several states, require that payment to include sales tax and title fees and to be based on comparable cars; New York requires the sales tax but not the title fees. If the offer looks low, ask how it was calculated and push back with your own evidence.

How does an insurer decide a car is totaled?

The basic test is cost against value. The Texas Department of Insurance says the insurer will look at the value of your car against the cost to repair it, and if repairs cost close to or more than its value, it will likely total the car. The department adds that some insurers total a car even when the repair would cost less, so it is fair to ask how the decision was made.

Some states write a percentage into their salvage laws. In New York, the DMV says one of the ways a car becomes a "salvage vehicle" by law is having repair costs of more than 75% of its pre-damage retail value. Other states draw a similar line:

• The Maryland Insurance Administration says a vehicle is considered salvage by law when the cost to repair it for legal road use, not counting cosmetic damage, exceeds 75% of its fair market value before the damage.
• Virginia law requires an insurer that acquires certain late-model vehicles to get a salvage or nonrepairable certificate when the estimated repair cost exceeds 75 percent of actual cash value.

Otherwise, the decision comes down to the insurer's comparison of repair cost and value, as the Texas Department of Insurance describes it. For what happens to the title afterward, see salvage and rebuilt titles.

How is the payout calculated?

On your own collision or comprehensive coverage, you get the car's actual cash value minus your deductible. New York's Department of Financial Services reminds drivers that they generally won't be paid more than that value, which takes depreciation into account. It adds that some insurers sell "replacement coverage" that pays for a brand-new car of the same make and model, usually only in limited cases, such as within one to three years after you bought the car.

The NAIC model regulation sets out how that value should be reached. The insurer may either:

1. offer a replacement car that is comparable: same maker, same or newer year, similar body style, options and mileage, in as good or better condition, available at a licensed dealer within a reasonable distance, with taxes and fees paid, or
2. pay cash based on the actual cost to buy a comparable car, including taxes, license fees and transfer fees, minus any deductible.

Under the model, the cash figure can come from two or more comparable cars in your local market within the last 90 days, from dealer quotes, or from a valuation source that meets statistical standards. If the insurer settles in a way that departs from these methods, the model says it must document why, and any deductions, including for salvage, must be itemized, stated in dollars and fully explained to you.

State versions add detail. In New York, a 2008 legal opinion from the Department of Financial Services says insurers do not have to add title transfer fees to a totaled car's value, though they may, as long as they do it the same way for everyone. California requires any adjustment to a comparable car's cost to be itemized and stated in dollars, that comparable cars be identified by VIN, stock number or plate where available, and that the cost be fully itemized and explained in writing when the offer is made. The Washington insurance commissioner says insurers there must add taxes, license fees and other transfer fees to the value.

Can you see how they reached the number?

Yes, and you should ask. The Washington insurance commissioner suggests asking for a "total loss valuation report," which shows the data used, because the insurer may not give it to you unless you ask. The Texas Department of Insurance says you can ask what source the insurer used.

Some states spell out more. The Maryland Insurance Administration says you may ask the insurer to put in writing its offer, the method used, the detailed calculation including options, the list of deductions, and the inspection guidelines used to judge the car's condition, and that the insurer must respond within 7 business days.

How do you dispute a low offer?

Treat it like a negotiation backed by facts.

If you still disagree, many policies offer appraisal: you and the insurer each hire an appraiser and an umpire settles the difference. See the appraisal clause. For other options, see what to do when a claim is denied or lowballed.

Can you keep a totaled car?

Often, yes. The insurer subtracts the car's salvage value from your payment. In New York, the same 2008 Department of Financial Services opinion says sales tax is figured on the car's full pre-accident value first, and the salvage value comes off after that. The Texas Department of Insurance says to tell the insurer as soon as possible if you want to keep it, that the car may get a salvage title, and that it could be harder to sell or insure later. In New York, the DMV must examine a rebuilt salvage vehicle before it issues a new title certificate or registration; the exam checks whether the car or any of its parts are stolen, and it is not a safety inspection. The Maryland Insurance Administration suggests asking for both numbers, the payment if you keep the car and the payment if you don't, before deciding.

What if you owe more than the car is worth?

The insurer pays the car's value, not your loan balance. If there is a lien, the Maryland Insurance Administration says the insurer will either pay the lender directly or issue a joint check to you and the lender. If the value is less than what you owe, you are still responsible for the rest unless you have gap coverage. See gap insurance.

If the car can be fixed after all, the collision repair page explains what that repair involves.