When your vehicle is totaled in an accident and you carry collision coverage, you expect your insurance company to pay you for the value of your car.
Not so fast. Your insurance company pays you for what it claims the value of your car to be. Often, a total loss offer is much lower than you expect and may not be enough to purchase a similar replacement vehicle.
A car is declared an economic total loss when it is more expensive for the insurance company to repair the vehicle than to pay out the value of the car. Constructive total loss occurs when a vehicle is damaged beyond repair, regardless of cost.
In California, the Total Loss Formula (TLF) is:
Cost of Repairs + Salvage Value ≥ Actual Cash Value.
Salvage Value is the amount the car could be sold for in its damaged condition. Actual Cash Value (ACV) is an estimate of the value of the car in its condition just before the collision. ACV takes into consideration:
When you report a car accident to your insurance company, an adjuster is assigned to assess the damage and determine whether to classify the vehicle as totaled. Even if it can be fixed, your vehicle may be considered a total loss.
Generally, cars are totaled when the cost to repair the vehicle is higher than the ACV, but individual insurance companies define their own practices for determining ACV, as well as the threshold for determining economic total loss. The TLF ratio ranges from about 60 percent to 80 percent of ACV.
One out of seven vehicles involved in an auto accident is declared a total loss, according to a major private database provider of car values used by the top insurers in the nation.
The valuation report that a car insurance adjuster provides to the policyholder is usually several pages of intimidating details, making it seem thorough and accurate. However, some major car insurance companies have been accused of short-changing policyholders. In reality, a total loss offer may not be a fair amount that will recover your damages and restore your transportation.
Tactics to incrementally downgrade estimated value have been observed pervasively in the industry, such as:
While each of these tricks may lower a vehicle’s estimated value by just a few hundred dollars, the inequity can add up to a replacement amount that isn’t enough to purchase a comparable replacement vehicle. In addition, individual vehicle deductions are multiplied by the thousands of vehicles totaled annually, creating a huge cost savings incentive for insurance companies.
There can be a significant difference between the value of your car according to the insurance company and the amount of a comparable replacement vehicle.
When consumers research the value of a used car, they consult with commonly used ratings like Kelley Blue Book and research similar vehicle advertisements on Craigslist and Facebook Marketplace. The amount of your settlement offer should have some relationship with an estimated value that you research after subtracting the amount of your deductible.
When insurance companies develop an estimated value for your totaled car, they consult an industry-specific, third-party source instead. Major insurance providers use just a select few vendors employed exclusively by the insurance industry -- not the overall used motor vehicle industry.
The ACV estimate, and therefore the total loss offer, should reflect what a person would pay for your car, assuming the accident did not occur. Many policyholders find this amount to be significantly different than the used car values they see in real life in their neighborhood market.
The Arnold Law Firm advocates for protection of the consumer. If you had a total loss claim after a car accident, you may not have received all of the compensation you should have.
If you think your total loss offer was unfairly calculated, give us a call at (916) 777-7777.
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