Smash! You never saw it coming — a driver runs a red light, and slams into the side of your vehicle, leaving behind a trail of twisted metal, broken glass, and thousands of dollars in damage.
Airbags saved the day for you and the other driver, but your car is a wreck. Depending on where you live and your auto insurance company, your vehicle may be totaled or repaired. We’ll examine a few factors concerning major wrecks, including what constitutes a total loss and salvage title, and how each one may impact you going forward.
From the Eyes of Your Insurer
Policyholders and insurance companies evaluate damage differently. Where you may view the damage as a total loss, the insurer may look at your car as one that can be fixed. The bottom line for insurers is helping their bottom line — the cheapest option is typically chosen whether you like that decision or not.
The insurance companies are regulated at the state level, therefore each state sets the criteria for when a vehicle is declared a total loss and a salvage title is issued. That threshold is lowest in Iowa at 50 percent, and highest in Colorado and Texas at 100 percent.
Total Loss Formula
In 21 states, determining total loss is based upon a total loss formula or TLF. Here, the insurer determines the cost of repairs plus the scrap value. If it equals or exceeds the actual cash value (ACV) of your car before the accident, then it is totaled. If it comes in lower, then your car may be fixed and returned to you.
What consumers won’t know is how Company A determines car value or how it stacks up against the competition. Based on TLF, Company A may assign one value leading to a total loss declaration, while Company B may see your car as repairable. In any case, if you are unhappy with the appraisal, then challenge it. Insurers will typically reevaluate their decision, giving you a chance to come away with a better deal.
When you have an accident, call your insurer. An appraiser will be sent out to evaluate your car, taking into consideration such factors as the make, model, model year, trim or options, mileage, and the condition of your car.
How Your State Compares
Which states use TLF? How do the other states that don’t use TLF compare? Let’s examine what CarInsurance.com discovered when they explored total loss thresholds by state.
TLF states (21): Alaska, Arizona, California, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Maine, Massachusetts, Montana, New Jersey, New Mexico, Ohio, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, and Washington.
100 percent threshold (2): Colorado and Texas
80 percent threshold (3): Florida, Missouri, and Oregon
75 percent threshold (16): Alabama, Kansas, Kentucky, Louisiana, Maryland, Michigan, Nebraska, New Hampshire, New York, North Carolina, North Dakota, South Carolina, Tennessee, Virginia, West Virginia, and Wyoming.
70 percent threshold (5): Arkansas, Indiana, Minnesota, Mississippi, and Wisconsin.
65 percent threshold (1): Nevada
60 percent threshold (1): Oklahoma
50 percent threshold (1): Iowa
Car Insurance Considerations
You may live in a no-fault state, but that doesn’t mean the insurer isn’t aware of who is at fault in an accident. In the example shared here, the other driver is at fault. That means you’re entitled to a rental car while your claim is being considered or your car repaired.
The rental car may be offered for 30 days or until your claim is settled. In the meantime, begin shopping for a replacement vehicle if your car is totaled.
If your car is totaled and you want it back, your insurer may allow you to have it. Here, the insurer will determine your car’s cash value, then subtract the deductible and the salvage value. But be forewarned: your car will now carry a salvage title and may be more difficult to insure even if it has been repaired.
Consider Gap Protection
One of the biggest shocks for owners of totaled cars being financed is how large the deficiency is between the settlement amount and what they owe on the car. Had the owner opted for gap protection, the difference between the loan balance and insurance payment would have been erased, effectively canceling the debt.
Your insurance company, lender, and online vendors offer gap protection, although some insurers include it with their general coverage. Review your policy and plan accordingly.