Just how or when an insurance company determines that your vehicle is a total loss is determined first and foremost by the cost of repairs. As any personal injury lawyer will know first hand, an insurance carrier wants to pay the least amount possible on a claim. The law only requires payment up to the replacement cost of the vehicle since it is not economically efficient to require repair of a vehicle if repairs would cost more than paying for a replacement vehicle. Therefore, if it would cost the insurance carrier less money to declare your vehicle a total loss and pay for the replacement value as opposed to paying for repairs to the vehicle, then that is what it will do and that is all it has a legal obligation to do.
When Will My Car Be Totaled By an Insurance Company?
Many people mistakenly assume that if the cost of repairs is a dollar less than the value of your vehicle, then the insurance company is required to pay for the cost or repairs (instead of the amount required to replace a vehicle) and that it would make economic sense to make the repairs. This assumption misses one key factor that personal injury lawyers must explain to their clients: when your truck or car is totaled and an insurance company pays you the replacement cost of your vehicle (so that you can go out and buy a replacement vehicle), the insurance carrier will acquire the vehicle and be able to sell it for the salvage value. In general, your vehicle will be totaled, that is, determined to be a total loss and replacement value paid, if the cost of repairs exceeds the net loss to the insurance company if replacement value is paid, after accounting for recoupment of salvage value.
How Salvage Value Reduces Net Loss to Insurer
In comparing the cost of repairs to the value of a vehicle to determine if cost of repairs exceeds value and therefore the vehicle will be deemed a total loss, salvage value must be deducted from vehicle value in order to determine the true net loss to the insurer. As stated earlier, your car or truck will be deemed a total loss and its replacement cost paid (as opposed to being repaired) if the repair cost exceeds the net loss suffered by the insurance company if it elected to pay the replacement cost. Calculating the net loss to an insurance company is simple: replacement value minus salvage value. Therefore, in asking “when will my car be totaled,” you have to fully consider and take into account and uses the salvage value of your vehicle. To determine whether your car or truck will be deemed a total loss, your San Diego injury lawyer must deduct salvage value from actual value in order to ascertain the net loss to the insurer and then compare that net loss to what the cost of repairs would be.
Example: Vehicle Repaired
For example, let’s say the cost of repairs to your car is $9,000, it is worth $10,000, and the salvage value is $500. In that case, you first take the $10,000 vehicle value that the insurance must pay, and subtract the $500 salvage value that the insurance company will recoup, yielding a net loss of $9,500 for the insurance company. You then compare the $9,500 net loss to the $9,000 cost of repairs. Cost of repairs is less than the net loss the insurance company would suffer if the vehicle were replaced and therefore your vehicle will be repaired.
Example: Total Loss / Replaced
Now change the salvage value of the car in the above example to $1,500. This would yield a completely different result. In this case, you take the $10,000 vehicle value that the insurance must pay, and subtract a $1,500 salvage value that the insurance company will recoup, yielding a net loss of $8,500 for the insurance company. You then compare the $8,500 net loss to the $9,000 cost of repairs. Cost of repairs is greater than the net loss if the vehicle were replaced and therefore your vehicle will be deemed a total loss and replacement value paid.
Insurance companies usually determine the amount required to replace your vehicle (replacement value) using their own sources, such as Autosource, which publishes valuations based on market research of what cars are selling for in your area. In comparison to Kelley Blue Book (KBB) values, which most consumers are familiar with, the valuation used by insurance companies will fall somewhere in between the KBB excellent condition private party value and the KBB retail value figure.
Taxes and DMV Fees
In determining its net loss and whether to declare your vehicle a total loss, the insurance carrier will also have to take into account sales taxes and DMV fees that it would need to pay as part of paying for the replacement cost of a vehicle. Often, an insurance adjuster may neglect to account for these items. An experienced California car accident lawyer will make sure that these items are accounted for, as they may make the difference as to whether your car is totaled or repaired.
If you were at fault and going through your own insurance, one other factor that your car or truck accident lawyer must consider is your deductible, which would be an offset against the amount that an insurance company would be required to pay out on your claim. For purposes of determining whether to declare a total loss, a full and proper analysis also entails an accounting for the deductible amount, which, just like the salvage value, is akin to a recoupment that the insurer should account for in order to determine the true net loss to the insurer.
Can I Keep My Totaled Car or Truck?
If your vehicle is a total loss and the replacement value is paid to you, you still have the option of keeping the totaled car or truck, for example, if it has sentimental value. In that case, the insurance company will simply deduct the salvage value (which it could have obtained by selling your vehicle for salvage value) from the replacement value that it is obligated to pay.
Factor that Repair Costs May Estimate Increase
Frequently, after beginning repairs to a vehicle and pulling off bumpers and other parts, additional previously hidden damage will be revealed and the repair estimate will increase. To factor in the very real possibility that repair costs may increase, insurance companies will usually want to leave a little slack in comparing the cost of repairs to the vehicle value for purposes of determining whether to declare a vehicle a total loss. For this reason, you cannot always assume that just because the cost of repairs is less than the net loss to the insurance company if the vehicle were replaced, your vehicle will be repaired. As to just how much slack should be left, that is determined on a case-by-case basis according to the nature and location of damages to your vehicle.
70% Rule of Thumb
Because of the possibility that a repair estimate may increase, a good rule of thumb used by personal injury attorneys to determine if your car or truck is likely to be totaled is the 70% rule, meaning that the cost of repairs should not exceed 70% of the value of your vehicle. This is a rule of thumb, not an exact science. There are a number of factors that determine whether or not your car will be totaled. Still, this simple rule works a majority of the time.