how insurers determine a total loss

How Insurers Determine if a Vehicle is a Total Loss

When it comes to auto insurance, understanding the insured value of your vehicle can be pretty tricky. The amount you paid for your car may not necessarily reflect its insured value. Insurers consider various factors to determine the insured value of a vehicle and whether it qualifies as a total loss after a claim.

Depreciation is a significant factor that plays a crucial role in determining the insured value of a vehicle. On average, cars depreciate by 20% to 30% in the first year alone. Although depreciation slows down after the first year, it is not uncommon for the value of a vehicle to drop by up to 60% within the first five years of ownership. It’s essential to note that insurance coverage is based on the market value of the car, not the loan amount or the purchase price. Depreciation gradually reduces the market value of the vehicle each year.

For example, purchasing a car for $35,000 brand new might only be worth around $28,000 after just one year. Insurers typically determine the insured value based on comparable vehicles in your area. Moreover, depreciation rates can vary depending on the make and model of the car, as some vehicles depreciate faster than others.


Calculating a Total Loss

Newer vehicles are less likely to be deemed a total loss because their insured value is higher. However, let’s take a closer look at a car that is five years old. At this point, many vehicles have experienced depreciation of up to 60%, meaning that a car that initially cost $35,000 may now have an insured value of approximately $14,000.

While the insured value may be around $14,000, an accident resulting in damages less than that amount could still lead to the vehicle being considered a total loss. It is not uncommon for body shops to discover additional damage when they disassemble the car to replace damaged parts. Insurers often establish a cutoff percentage to determine whether a vehicle is a total loss. For instance, if your vehicle’s current value is $14,000 and the damages amount to $11,000, and your insurer has set a cutoff of 70%, then your car would be considered a total loss. Please be advised this is an example, and I am not suggesting this is the actual percentages used by adjusters*. 

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Understanding a Total Loss and the Claims Process

It’s important to note that when a vehicle is deemed a total loss, it doesn’t mean you are left empty-handed. Instead, it signifies that investing money in repairing the vehicle is not economically feasible from the insurer’s perspective. In most cases, you will receive a payout on the claim if you have coverage for the risk. However, the insurer typically retains the damaged vehicle. In exchange for the car, the insurer will provide a payout based on the vehicle’s actual cash value minus your deductible.

This payout is often enough to help you purchase another new or used vehicle. It’s worth noting that the process and specific details of the claims process can vary between insurers, so it’s essential to review your policy and consult your insurer for more information.

Additional Factors Considered in Determining a Total Loss

Apart from the insured value and the cost of repairs, insurers consider several other factors when determining whether a vehicle is a total loss. These factors can include:

  1. Estimated salvage value: Insurers assess the potential salvage value of the damaged vehicle. If the salvage value exceeds a certain threshold, it may influence the decision to deem the car a total loss.
  2. Market value before the loss: The vehicle’s market value immediately before the accident or incident is a crucial consideration. Insurers typically rely on various sources, such as industry guides and databases, to determine the market value accurately.
  3. Loss of use costs: If you require alternative transportation, such as a rental car, while your vehicle is being repaired or replaced, the associated costs may be factored into the decision-making process.

Factors That Affect the Market Value of Your Vehicle

It’s important to differentiate between factors that do and do not impact the market value of your vehicle. Insurers primarily focus on the following aspects when determining the market value:

  • Year, make, model, and edition of the vehicle
  • Exterior and interior condition of the vehicle
  • Condition of mechanical parts
  • Tire condition
  • Aftermarket equipment
  • Options and features
  • Mileage

It’s important to note that regular maintenance activities such as oil changes, tune-ups, and belt/hose replacements do not significantly impact the market value of your vehicle.


Replacement Coverage: Protecting the Value of Your Vehicle

Are you concerned about protecting the value of your vehicle? Replacement coverage can give you peace of mind in the event of a total loss. With replacement coverage, your insurer will replace your car with a new one of a similar make and model, regardless of any depreciation that may have occurred. This ensures that you can maintain the value and quality of your vehicle, even if it’s deemed a total loss.

If your vehicle is a couple of years old, it may be worth considering Optiom Replacement insurance. This coverage can provide additional protection, ensuring you are adequately compensated for a total loss. To determine if you are eligible for replacement coverage, contact one of our advisors, who can guide you through the process and help you understand the benefits of this type of insurance.



Understanding how insurers determine if a vehicle is a total loss is essential for vehicle owners seeking clarity on insurance claims. Factors such as depreciation, repair costs, and the vehicle’s insured value are crucial in this determination. By comprehensively understanding these factors, you can make informed decisions about your insurance coverage and protect your investment in your vehicle. Suppose you have concerns about your car’s insured value or want to explore additional coverage options. In that case, it is advisable to consult with an insurance advisor who can provide personalized guidance based on your specific needs and circumstances.

Remember, when your vehicle is damaged beyond repair and is considered a total loss, the insurer will compensate you for the actual cash value of your vehicle minus the deductible, if applicable. With the right insurance coverage and an understanding of the claims process, you can confidently navigate the complexities of total loss claims.

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