How an Auto Insurance Company Decides If Your Vehicle is a Total Loss or No

​When you get into an accident that seems relatively minor, you may end up surprised when your insurance company declares your vehicle totaled. Also known as declaring a total loss, this decision relies on different information than you might expect. Understanding the total loss formula will give you some insight into what might happen the next time an accident damages your vehicle.

The Total Loss Formula
As with most other insurance decisions, the adjuster handling your case uses a formula to determine if the car is repairable or a total loss. Even minor car repairs are expensive, so older cars with lower values are often less expensive to replace than repair. A repaired vehicle often doesn't function quite the same or offer the same safety benefits either.

By declaring a total loss, the insurance company can reimburse you with the money to buy a replacement vehicle rather than spending more to cover the repairs. When the car insurance company declares a vehicle as totaled, they usually must pay you its fair market value on the day of the accident. Remember, this is the car’s depreciated cash value at the time of the loss.

What Happens to Totaled Cars?
You can't keep a car that the car insurance company declares as a total loss. In exchange for the reimbursement of its value, the insurance company becomes the legal owner of the damaged vehicle. They sell these cars to salvage yards to recoup a little of their cost.

Salvage yards generally break these cars down into salable parts and recycle the rest, but cars with limited damage may undergo repairs and end up resold as running vehicles again. This means you may see your old totaled car driving around again one day, but it's highly unlikely.

Can I Dispute a Declaration of Total Loss?
When you get into a minor collision but have a car with a very low market value, even a badly dented bumper could tip your car into a total loss. If you want to keep your vehicle, you can try disputing the declaration.

Hire a private vehicle appraiser to make their own assessment of your vehicle's condition and value to back up your claim. If the auto insurance company disagrees, you can argue the case in litigation, but must prove the vehicle costs less to repair than to replace to win the claim.

Getting compensated an adequate value of a totaled car should help you find a reasonable replacement. If you're concerned, talk to your auto insurance company about how they handle declarations of total loss before you get into an accident.