It’s common after an accident for a person to describe his vehicle as having been “totaled,” but he may not know exactly what that means. In order for a vehicle to be considered a total loss, the insurance company must inspect it and determine that the cost of repairs exceeds the value of the vehicle. At that point, the insurance company will offer a settlement based on the vehicle’s cash value, and the vehicle’s owner can decide whether or not to retain the salvage rights on the car.

How is a Total Loss determined?

After an auto accident, an adjuster will need to complete an inspection on the damaged vehicle. He will take photographs and assess the damage. Once he finishes the estimate, he will compare the cost of repairs to the vehicle’s market value. If the vehicle would cost more to repair than it would to replace, the vehicle will be determined to be a total loss.

Some types of damage can never be completely repaired. Certain types of frame damage, for example, will cause permanent and irreparable damage to the vehicle. In this case, the vehicle will be totaled regardless of its value.

In some situations, totaled vehicles are still operable. This occurs frequently with older-model cars or those that have a low base value. The type of damage may also be purely cosmetic. For example, hail damage could total out a vehicle without making it unsafe to drive.

What does a car insurance settlement entail?

A settlement can only be provided if the insured has the necessary coverage to pay for the loss. If a vehicle is damaged in a hail storm, for example, it must have comprehensive coverage on the policy. If the car is involved in an auto accident, it must have collision coverage. If a vehicle with only liability insurance is involved in an auto accident, the vehicle’s insurance company cannot pay for the repair or replacement of the vehicle.

If the vehicle was hit by another car, the at-fault party’s insurance should be responsible for paying the damage. In this situation, the claim would be filed against the other party’s insurance company and that company’s adjuster would assess the vehicle for damage.

Any deductible that applies to the loss will be subtracted from the settlement offer. For example, if an insured has a $500 deductible and the car is worth $1500, the insured will only receive a $1000 settlement. In cases where another person’s liability coverage is paying for an accident, no deductible would apply.

The vehicle will be priced at its actual cash value. This is not identical to the Kelly Blue Book value, but it is derived in a similar way. The adjuster will determine what the replacement cost of the vehicle would be in the area; he will also take into account any recent improvements made to the vehicle, such as new tires or a recent engine overhaul. Once the insured has accepted his settlement, the vehicle will be taken to a salvage lot where the insurance company will auction it off for parts.

If the insured prefers, he can retain the salvage rights to his vehicle. This will allow him to buy the car back from the insurance company at a percentage of its value. The insured can then spend the remainder of the settlement on repairing the vehicle. Retaining the salvage rights to a car can be a smart move if the vehicle is easily repaired or if the car was damaged due to cosmetic damage. If repairs would be extensive, allowing the vehicle to be scrapped may be the wisest financial move.

What are the concerns for a Salvaged Vehicle?

Whether you retain the salvage rights on your own damaged car or purchase a vehicle from a salvage yard, you will be given a salvage title. Vehicles with salvage titles require special insurance considerations. Because an insurance company has already totaled the vehicle, most salvaged cars cannot be paid for in a future claim.

Because an insurance company will not pay for subsequent damage, there is no reason to carry full coverage auto insurance on a salvaged vehicle. Also be sure to inform the insurance company that the vehicle was salvaged; your rates may be affected if the insurance company doesn’t realize that the vehicle is not worth its full value.

In some situations, salvaging a total loss is a wise economic choice. In other cases, it’s best to accept the settlement money and find a replacement auto. Before deciding what to do with your car, take a moment to weigh the pros and cons of each option. That way you can be assured that whatever decision you make is the right one for you and your vehicle.