How Do Car Insurance Companies Calculate Total Loss Value?

When you have had a devastating auto accident and your insurance adjuster tells you your car is totaled, you may wonder, “How do car insurance companies calculate total loss value?” Your own insurance company determines value based on the vehicle’s actual cash value (ACV). ACV is calculated by subtracting depreciation from the cost to replace the car. Factors like mileage, condition, and market demand can influence depreciation.

Have you been injured in a car accident due to another driver’s negligence when your vehicle is considered totaled? Our experienced car accident attorneys are here to assist you.

When Is a Car a Total Loss?

Andrew S. Kryder, Esq. explains, “The insurance company is going to look at the damage done to your car. They’re also going to look at the value of the car.”

“They look at the make, model, mileage, and condition, [and] they come up with a general price for the vehicle as it existed before the accident happened,” Andy continues. After a mechanic provides an estimate of how much it might be to fix the vehicle, the insurance company considers the data and says, “‘Is it more to fix the car than the value of the car?’ If it is more to fix the car than the value, they’re going to rule it a total loss.”

How Is the Value of a Total Loss Car Determined?

In Illinois, a car is considered a “total loss” if the sum of repair costs and scrap value surpasses the vehicle’s pre-accident market value.

If your car is worth $14,000, but after a crash the salvage value is $6,000 and repairs cost $10,000, it’s considered “totaled”—the $16,000 for salvage and repairs exceeds its value. In this case, the insurance company will pay you the car’s market value minus any deductibles.

What Is Fair Market Value?

Fair value or fair market value, as defined by the National Association of Insurance Commissioners (NAIC), is the price at which your vehicle might be sold in a fair deal between consenting parties. It’s the prospective selling price for your car in its current state in an open market transaction.

This shouldn’t be confused with Kelley Blue Book or the National Automobile Dealers Association (NADA) value; insurers often use this to underquote a car’s ACV, which deducts depreciation from the replacement cost after loss.

How Much Must Insurance Companies Pay Out for a Total Loss Car?

When a vehicle is a total loss, insurers must pay its pre-accident market value, adjusted for depreciation, mileage, and condition.

Factors That May Impact Fair Market Value

Several factors affect a vehicle’s market value, including its make, model, age, mileage, condition, and demand in the used car market. Modifications or upgrades, like custom paint jobs, can also impact its value.

What Is the Cutoff Value for Repair?

In Illinois, a vehicle is deemed a “total loss” if repair costs exceed the pre-accident value minus its scrap value. In such cases, the insurance company isn’t required to repair the vehicle.

Can Used Aftermarket Parts Be Used to Repair My Vehicle?

Yes. Typically, a repair shop will use three categories of components:

• Original Equipment Manufacturer (OEM) parts are high-quality but expensive, and insurance companies often avoid covering them.
• Non-OEM parts are cheaper but may lack quality. Insurance companies often use them to reduce costs and must disclose this under Illinois law.
• Used or salvaged parts, usually from wrecked vehicles, are cost-effective, recycled options.

How to Maximize the Total Loss Value of Your Car

In his Car Accident Property Damage How-To Guide, Andrew Kryder, Esq. gives tips on increasing the total loss value of your car.

Andy recommends, “If you can document your claim and be a good advocate, you might be able to increase [the car’s value].”

• Tell the insurance adjusters about your car’s features.
• Show repair records to prove it was well-maintained.
• Use photos of your vehicle prior to the accident to show its good condition.
• Provide documentation for new parts that could increase its value.

Factors That Affect Fair Market Value of Your Car

Some factors that affect fair market value include:

• Mileage
• Vehicle age
• Vehicles condition
• Undesirable aftermarket modifications
• Unusual vehicle colors

Who Pays the Taxes and Transfer Fees on the New Vehicle?

If you buy a new or replacement car, retain all receipts since auto insurance firms are obligated to cover relevant sales tax, licensing, and transfer expenses. Include them in your auto insurance claim.

What If I Owe More Than My Totaled Vehicle Is Worth?

If your car’s value is less than your loan, you’re responsible for the difference. Gap insurance can cover this shortfall minus the deductible.

If another driver caused the damage, their insurance comprehensive or collision coverage might help cover the gap between your car loan and the car’s value.

How Do I Know If the Settlement Offer for My Total Loss Is Fair?

To see if the claims adjuster’s settlement for your totaled car is fair, calculate its actual market value. An independent appraisal is a good idea, as insurance appraisers may undervalue your car to reduce the payout.

What If I Disagree with the Insurance Company’s Valuation of My Total Loss Car?

If you disagree with the insurance company’s assessment of the value of your totaled car, you have a few options:

• Use professional appraisals to negotiate your car insurance settlement.
• File a complaint with the Illinois Department of Insurance.
• Consult an experienced lawyer to explore your options.
• Sue the insurer as a last resort due to the costs and time involved.

What Happens After My Car Is Declared a Total Loss?

If your car is totaled in an accident, your insurer will pay the pre-accident ACV minus any deductible. You’ll need to transfer the title to them. You can also choose to keep and repair the vehicle at your own cost.

Do I Still Have to Pay Insurance If My Car Is Totaled?

You must pay your insurance premium until the car is declared a total loss and the title is transferred. After that, you can cancel the insurance.

What If I Was Injured in the Automobile Accident?

If you’re injured in a car accident, your insurance or the at-fault driver’s insurance may cover medical expenses and lost wages. Personal injury protection (PIP) or uninsured/underinsured motorist coverage can also help.