My Car Was Totaled. Why is My Compensation Offer So Low?

green-car-totaledWhen 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.

What is a Total Loss?

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:

  • mileage
  • options
  • features
  • condition
  • mechanical soundness (including any recent repairs)
  • supply and demand for your specific car in your geographic area.

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.

How is the Total Loss Amount Determined?

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:

      • Depressed Market Vehicles -- Comparable vehicles used in the report are supposed to be located in your local market. Some vehicles from other areas known to have lower values may be incorporated to lower the average comparable replacement price.
      • Improper Condition Ratings -- Terms used to describe the condition of used vehicles have specific details associated with them, such as the presence or absence of cuts, cracks, and dents. While a description of “fair” or “average” may initially seem reasonable, the rating may actually represent a far worse condition. Most consumers do not dispute condition ratings, because they are unfamiliar with how these terms are defined.
      • Wrong Model – Certain vehicle models increase the value of a used vehicle. Lower-level models may be used to lower the average estimated value.

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.

What is My Car Worth?

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.