How Do Car Insurance Companies Calculate Total Loss Value?

When your insurance adjuster tells you your car is totaled in a wreck, you may wonder, “How do car insurance companies calculate total loss value?” when you have had a devastating auto accident. 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.

If you or your loved ones have been injured in a car accident caused by the negligence of another driver, the experienced car accident attorneys at The Kryder Law Group, LLC Accident and Injury Lawyers are here to help with your auto insurance claim.

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.

Suppose your car was worth $14,000. Following a crash, if the salvage value of the vehicle is $6,000 and repair costs amount to $10,000, your car is ‘totaled’—the $16,000 for salvage and repairs exceeds its market value. In such cases, the insurance company will pay you its full market value, after subtracting any applicable 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 NADA value, which insurers often use to underquote a car’s actual cash value (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 determined to be a total loss, insurers must compensate its pre-accident fair market value. This isn’t the purchase value, but one adjusted for depreciation, mileage, and condition.

Factors that May Impact Fair Market Value

Various factors influence a vehicle’s fair market value, including its make and model, age, mileage, condition, and the demand for similar vehicles in the used car market. Any modifications or upgrades, such as custom paint jobs, can also affect the vehicle’s value.

What Is the Cutoff Value for Repair?

According to the total loss formula in Illinois, the threshold for repair is determined by subtracting the vehicle’s scrap value from its pre-accident fair market value. If the expense of repair surpasses this calculated total loss threshold, the vehicle is deemed a ‘total loss.’ The insurance company is not required to repair your 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 from the vehicle’s producer that offer pricey top-notch quality. Insurance companies avoid covering these parts whenever they can.
• Non-OEM parts, being more generic, are affordable but may compromise on quality. Insurance companies almost exclusively use these parts in order to keep costs down. Under Illinois law they are required to disclose this practice.
• 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 car insurance adjusters about your vehicle’s features.
• Show them more evidence using repair shop records proving it was well-maintained.
• Take photos—if you have one before the accident—to show the car insurance adjuster what good condition it was in.
• Provide documentation if you have new parts—they might also increase the value of your car.

Factors that Affect Fair Market Value of Your Car

Some factors that affect fair market value include:

• Odometer. The more miles driven, the more wear and tear on a vehicle.
• Vehicle Year. Unless a vehicle is collectible, older makes and models tend to depreciate.
• Overall Condition. Vehicles with no scratches, dents, tears, or fading will command a higher fair market value.
• Aftermarket Modifications. Expensive aftermarket modifications such as custom paint work can actually hurt your vehicle’s value.
• Color. Unusual colors can also impact the value of your vehicle.

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 claim.

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

If your car’s fair market value falls short of your loan amount, the difference is your responsibility. However, gap insurance, an add-on to your regular coverage, can handle this shortfall, minus any deductible.

If another driver caused property damage in your accident, you might be eligible for a payout from their insurance to bridge the gap between your car loan and the value of your totaled car.

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

To determine if the settlement offer from the claims adjuster for your totaled car is fair, calculate its actual and fair market value. Having it appraised by an independent professional is a good idea as in-house appraisers from insurance companies may low ball you and minimize the amount the insurance company pays or will pay.

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:

• Negotiate the settlement offer with the car insurance company using supporting documents like a professional appraisal.
• File a complaint with the Illinois Department of Insurance if your negotiation is unsuccessful.
• Sue the insurer as a final option. Consider this carefully as it’s costly and lengthy. If you pursue this option, hire a lawyer with professional experience.

What Happens After My Car is Declared a Total Loss?

If an accident occurred and your vehicle is declared a total loss, your insurer will usually pay out the pre-accident ACV, less any deductible. You’ll need to transfer your car’s title to them, but you can opt to retain and repair the salvaged vehicle at your expense.

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

You must pay your insurance premium until the car’s total loss status is declared and the title is transferred. After this, the insurance can be canceled.

If you keep the vehicle prior to the salvage, local laws may require liability coverage.

What If I Was Injured in the Automobile Accident?

If you sustained injuries in the accident that was caused by another party’s negligence, seek immediate medical attention. Document all medical treatments and medications, as these records can be instrumental in boosting the value of your claim.

Consult The Kryder Law Group, LLC Accident and Injury Lawyers to discuss your specific case in a free consultation.