How do insurers decide when a car is totaled?
If your car is damaged, you need to file a claim with the insurance company to see if it’s totaled or repairable. Here’s how the claims process generally works:
File a claim with the insurance company. After an accident, file a claim with your insurance company or the other driver’s insurance company, depending on who’s at fault and if you have collision or comprehensive coverage.
The insurer estimates the repair costs. The insurance company will send out a claims adjuster to inspect your car and calculate an estimate for auto body repair costs.
The insurer decides whether your car is totaled or repairable. The insurance company compares the cost of the repairs against your car’s pre-damage value. If repair costs meet a certain threshold, it’ll declare your car a total loss.
The insurer offers a cash settlement. If the insurer declares your car totaled, it’ll offer you a cash payout. You can review this settlement and decide whether it’s fair — and if not, you have options to negotiate.
Insurance companies generally compare your car’s pre-damage cash value against the cost of the repairs it would need to make it whole again. In some states, they may also include other costs in the calculation, such as salvage costs.
Most states set a minimum threshold for costs to be considered repairable or totaled. For example, in Oklahoma, your car would need repair costs of 60% of your car’s cash value to be considered totaled.
If you have a car worth $10,000 in Oklahoma, that means your car would be totaled if an insurance adjuster estimated it needed $6,000 of repairs. But in Colorado, where the threshold is 100%, you’d need a full $10,000 repair estimate for your car to be totaled.
Total loss formula
In other states, insurers use the total loss formula, which requires a bit more calculation and work. The formula is:
FMV = your car’s fair market value before it was damaged
RV = cost of repairs to completely fix your car
SV = your car’s value as a salvage vehicle sold to a scrapyard
If RV ≥ FMV − SV, then the car is declared a total loss.
In other words, if it costs more to fix your car than to just pay out what your car was worth (minus any proceeds it can get from selling your car to a scrapyard), your insurer will likely pay you the value. It’ll declare your car a total loss, sell it for parts, and pay you what it was worth rather than paying to fix it up.
For a $25,000 car that costs $15,000 to repair and is now worth $5,000 at the junkyard, your insurer might choose not to total your car and just pay for the repairs. The repairs ($15,000) will be less than what it’ll have to pay you minus the salvage value ($25,000 − $5,000 = $20,000).