What happens when your car is declared a total loss?

After an accident, hearing an insurance adjuster say your car is a "total loss" can be a confusing and stressful experience. This guide explains the total loss process. We will cover how your car's value is determined and what happens next. The goal is to help you understand your rights and options. The process is not random. It is guided by specific rules that determine the fate of your car.

What is a total loss?

A "total loss" (often just called "totaled") means the cost to repair your vehicle is more than it is worth, according to the insurer. Insurance companies do not just guess. They use a specific calculation, and there are two main methods states use to make this determination.

The Total Loss Formula (TLF)

Many states use what is called the Total Loss Formula, or TLF. The formula is: Cost of Repair + Salvage Value ≥ Actual Cash Value (ACV). The ACV is your car's market value right before the accident. The salvage value is what the damaged car is worth. If the repairs plus the salvage value add up to more than the car's pre-accident value, it is a total loss.

The Percentage Threshold

Other states use a different method, which is a fixed percentage threshold. In these states, a car is a total loss if repair costs exceed a certain percentage of the car's value. Automobile total loss thresholds are set by each state and range from 50 percent of the vehicle's value in Iowa to 100 percent in states like Colorado, while other states use a total loss formula comparing repair costs plus salvage value to the vehicle's actual cash value.¹ For example, Oklahoma law specifies a vehicle is a total loss if repair costs are 60% or more of its fair market value. Iowa uses a 70% fixed percentage threshold.

How is my car's value determined?

The Actual Cash Value (ACV) is a key part of this process. It is what your car was worth immediately before the damage occurred. An adjuster will determine this value by looking at several factors. These include your car's year, make, model, mileage, and its overall condition. They will also look at recent sales of similar vehicles in your local market. This process creates a fair valuation for your specific vehicle.

What are my options if my car is totaled?

Once your car is officially declared a total loss, you generally have two options.

1. Accept the Payout. The insurance company will pay you the car's determined ACV, minus any deductible on your policy. They then take possession of your car and will likely sell it for salvage. This is the most common path. It is straightforward and allows you to get a check to move on.
2. Keep the Car. You can choose to keep your totaled car. This is called "owner retention." If you do this, the insurer will pay you the ACV minus your deductible and the car's salvage value. You get to keep the damaged vehicle, but you will have to deal with repairs and a "salvage title." A salvage title can make it difficult to insure or sell the car in the future.

Dealing with a total loss is never easy, but understanding the process can make it less stressful. Knowing how the decision is made and what your options are can help you make the best choice for your situation.

This article provides general information and is not legal advice.

Sources

1. Florida's total loss threshold is when the cost of repairing the vehicle equals or exceeds 80% of the cost of replacing it with one of like kind and quality. - https://www.flsenate.gov/Laws/Statutes/2023/0319.30