What Is a Total Loss Vehicle Settlement?
A total loss vehicle settlement occurs when the amount of money necessary to repair your damaged vehicle exceeds the state-mandated percentage of the vehicle’s actual cash value.
Essentially, the insurance company is buying the damaged vehicle from you for the price that the vehicle was worth immediately before the collision happened.
Total Loss Thresholds and Valuations
When a car is totaled, it is not up to the insurance carrier or the insured to make that decision; it is dictated by law.
In North Carolina, for example, a vehicle is typically deemed a total loss when the damages exceed 70% to 75% of the vehicle’s value, with state law officially setting the threshold at 75% of actual cash value. This gets challenging when you have older cars where the vehicle may not be worth much, but repairs are very expensive even though it is actually a pretty easy fix.
Insurance companies determine the actual cash value based on what the law dictates: the value of the vehicle one second before the accident happened. They must look for a vehicle of like kind, quality, and mileage in your specific area. You cannot look up a 2015 Dodge Ram in Texas and compare that to one in North Carolina.
To find this value, adjusters use various databases:
- CCC ONE: Adjusters often rely on databases like CCC ONE, which is a third-party vehicle valuation software platform used by major insurance companies.
- Kelley Blue Book: You can counter their offers using resources like Kelley Blue Book, which has been providing vehicle valuation information to consumers since 1926.
- CarMax: Another excellent resource is CarMax, which provides vehicle valuations based on a car’s Vehicle Identification Number (VIN).
Your Vehicle Identification Number (VIN) is a 17-character alphanumeric code unique to each vehicle. Entering this number into valuation tools will give you a range of what your car is worth in a private sale or cash sale.
Can You Keep a Totaled Car?
If your car is totaled but you still want to keep it or repair it, the process is very simple.
First, the total loss value of the vehicle is determined. Then, a secondary valuation must be done to determine the vehicle’s salvage value, which is typically between 20% and 40% of its pre-loss market value.
Here is the step-by-step process of how this works:
- The insurance company agrees to pay you the total loss amount.
- They subtract the salvage value from that total loss payout.
- The insurance company submits paperwork to the DMV indicating they bought the vehicle as salvage.
- The DMV transfers the title back to you.
- If you keep the car, it gets branded with a salvage title, which is issued to a vehicle that an insurance company has declared a total loss.
If you have a lienholder on the vehicle, they get paid first. For example, if your vehicle is worth $20,000 and you owe $8,000 on it, that $8,000 gets paid to the bank first, and the rest of the money comes to you.
Gap Insurance and Your Auto Loan
With vehicle financing, it is not uncommon to owe more on your loan than the vehicle is currently worth.
If you are financing your car, gap insurance covers the difference between a vehicle’s actual cash value and the remaining balance on an auto loan.
If your vehicle is worth $20,000 but you owe $23,000, instead of being underwater by three grand, you can file a gap insurance claim. The gap insurance will pay off the remaining loan to the bank, literally filling the gap.
Negotiating Your Settlement and Deadlines
You should never accept the first total loss settlement from an insurance company. They are going to do everything they can to push the vehicle value down low. When there is a price range, they will be on the low end, and you want to be on the high end.
To negotiate effectively, submit documentation of any recent work done to the vehicle. If you just replaced the tires or had aftermarket suspension installed, that information can be added to the valuation. While most modifications will not get paid back dollar for dollar, finding objective resources online showing comparable cars with similar upgrades selling for higher prices gives you the evidence needed to prove your point.
Finally, keep an eye on the clock. The statute of limitations for filing a property damage lawsuit after a car accident in North Carolina is three years. Insurance companies cannot create arbitrary deadlines like threatening to close your claim in ten days if you do not respond. As long as you are within the statute of limitations, the claim is technically still viable. However, it is always best to handle things sooner rather than later.
Key Takeaways Before You Accept an Offer
Navigating a total loss vehicle settlement requires understanding how insurance companies value your property and knowing your rights. From demanding a proper valuation using independent databases to ensuring you receive a rental car of like kind, you do not have to accept the insurance adjuster’s first offer. By gathering receipts, researching comparable vehicles, and understanding the laws in your state, you can effectively negotiate a fair settlement that accurately reflects the value of your vehicle one second before the accident.
