When will insurance write off a car?

Your car is totaled when the cost to repair the vehicle is higher than the actual cash value. You do have the right to appeal the insurance company's decision.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Aug 10, 2020

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Here's what you need to know...

  • There are several different factors that must be considered before an insurance company writes off a covered auto
  • As a policyholder who may one day experience the write-off process, knowing these factors is critical
  • Understanding the parameters and the process of challenging a write-off assessment, you know how to deal with a write-off

Many people assume that a vehicle is deemed a total loss only after it is involved in a serious accident.

While cars are written off all of the time due to serious accidents, some insurers will total a car even if the damages appear to be minor.

No matter how confusing it might be, there is a formula that insurers will use to ultimately decide if totaling a vehicle is appropriate.

If you are looking for a policy, start comparing car insurance rates now by using our FREE tool below!

How do insurance companies decide to write off a car?

Car insurance providers declare cars a total loss for a variety of different reasons.

The most common reason a car is written off is when the cost to repair the vehicle damage is higher than the Actual Cash Value.

Actual Cash Value (ACV) is the fair market value of the car plus the following:

  • Title costs
  • Registration fees
  • Sales tax

Even though the most common cause of a write off is when damages exceed the replacement cost, the damage does not need to be that high for a total loss to be declared.

In many states, there is a Total Loss Threshold (TLT) that dictates whether or not the damage is high enough to lead to write-off status.

The TLT is a damage-to-value ratio that can range between 50 and 100 percent in various states.

Check your state’s laws in regards to the Total Loss Threshold so that you feel comfortable with the decision that the insurer makes when settling your claim.

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Total Loss Formulas

Not every state dictates a Total Loss Threshold (TLT). Some states require insurance companies to use what is called the Total Loss Formula (TLF).

The TLF is an equation that will help the company determine if it is worth it for the company to repair the car or if salvaging it would be best. This equation is particularly helpful when the covered auto is older and the cost of repairs is still high.

The TLF is: Cost of repairs + Salvaged value after loss > Actual Cash Value.

If either the TLT or the TLF is not met, and your car is declared a write-off, you do have the option to appeal or negotiate.

If the repairs and the salvaged value following the loss is higher than the ACV of the vehicle and the added fees, it is only practical for the company to write off the car.

When the repairs costs are considered uneconomical based on the types of damages sustained, do not be surprised by the decision to write-off the car.

Different Types of Salvage Classifications

When a vehicle is declared a write-off, the Department of Motor Vehicles will be notified and a salvage title will be issued.

There are a few different salvage classifications depending on the reason why the car could be declared a write-off.

The classification matters if you plan on keeping and insuring your vehicle after the loss.

Here is a breakdown of the most common salvaged classifications:

  • Salvage Rebuilt Vehicle – A vehicle that sustained damage above the TLT but has been repaired or rebuilt for title and registration
  • Reconstructed Vehicle – A vehicle that has been altered from its original construction with substituted or additional parts that did not come stock
  • Junk Vehicle – A vehicle that is inoperable or incapable of being driven safely on public roads; it is used for parts and cannot be registered again
  • Flooded Vehicles – Vehicles that have been either fully or partially submerged in water may be classified as a flood vehicle if the body, transmission or engine sustain serious damage
  • Stolen Vehicles – Many times stolen vehicles are classified as total losses because they are never recovered

Dealing With a Total Loss Claim

If you are in a serious accident, you discover your vehicle has been vandalized, or your vehicle has been stolen, you will need to file a claim.

Whether or not your insurer will cover repairs will depend on the type of coverage that you carry.

If you have both comprehensive or collision cover, you will have physical damage coverage in the event that you are in a collision or you have an other than collision claim.

You should look up the value of your vehicle, assess the valuation given to you, know your rights, and research the laws in your state if you are not convinced that your car is a write-off.

If you are not happy with your current insurer and would like to search for a new plan, you can easily shop around by using an online rate comparison tool.

Start comparing car insurance rates now by entering your zip code in our FREE tool below!

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