Background Information
Insurance can be a confusing and complex subject, particularly when it concerns the total out process. A car can be declared a total loss when an insurance company considers the cost of repairs to be too extensive through comparison to the value of the car. The economic value of the used car is usually stipulated in current market pricing found in well known price guides that are regularly published. In the event of an accident, a decline in value is normally experienced by the owner of a damaged car.
Determining When an Insurance Company Will Total Out a Car
When an insurance company makes the decision to total out a car, the decision is based upon the total value of the automobile. The total value of a vehicle is determined by the insurance company by comparing factors such as repair costs and the market value of similar cars of the same make, model and year.
Most insurance companies use an equation to determine when to total out a car. This equation is based on three main factors: the cost of repairs, the estimated market value of the car and an additional percentage to account for administrative costs. In some cases, this equation may calculate to a different number from the value of the car; such as when the value of the car is higher than the estimated costs to repair the car.
Repair Cost Factors
When determining when to total out a car, one main factor that insurance companies consider is the repair cost. The cost of repairs depends on the nature and extent of the damage to the car. It is vital that the insurance company get an accurate estimate of the repair costs, or else they may end up totalling out a car, when they could have made it more economically feasible to repair the car.
For example, if the repair expenses exceed 30% of the total value of the car, the insurance company will most likely decide to total out the car. In some cases, an insurance company may even total out a car if the repair costs are near 30% of the total value of the car if the repair costs for a certain part of the car are considered to be too expensive.
Market Value of the Car
The estimated market value of the car is the second factor that insurance companies consider when deciding to total out a car. Insurance companies refer to the market value of the car from a reliable source such as the Kelley Blue Book, or other price guides. In some cases, an insurance company may also consider internet values as part of the calculation.
For example, an insurance company may total out a car if the damage to the car is so significant that the difference between the market value of the car and the estimated cost of repairs is considered too great.
Administrative Costs
An additional cost that is taken into consideration is the cost of the administrative labor, that is incurred while dealing with the claim. This cost is usually allocated to the repair costs but it may be considered a factor in addition to the estimated repair costs.
For example, if the total cost of repairs and the administrative expenses are greater than the estimated market value of the car, the insurance company will most likely go ahead and total out the car.
Cash Settlement Versus Car Repair
When an insurance company totals out a car, the policyholder is typically offered a cash settlement in lieu of repairing the car. The amount of the cash settlement is dependent on the estimated market value of the car. When deciding whether to accept a cash settlement or have the car repaired, the policyholder should consider several factors, such as the cost of repairs, the estimated market value of the car, and the cash-out value being offered by the insurance company.
The policyholder may also want to take into consideration the facts that they will have to purchase another car and may come across further expenses such as registration, taxes, and insurance. It is important that they take the time to research and compare both the repair costs and the cash-out value to make an informed decision.
What to Do if You Believe a Car was Unfairly Totalled Out
If you believe that an insurance company has unfairly totalled out your car, do not simply accept the cash-out value that was offered. You have the right to dispute the decision with the insurance company.
If you choose to dispute the decision, you should give an in-depth explanation as to why you believe the car should not have been totalled out. You may even want to provide evidence to support your claim, such as repair estimates or receipts.
Filing a Complaint with Your State Insurance Commissioner
If the insurance company denies your appeal, you may consider filing a complaint with your state insurance commissioner. You should state your case and provide any relevant evidence to the commissioner.
If the commissioner believes that the insurance company has acted inappropriately, they may issue a reproval and order the insurance company to reconsider their decision. It is important to note that if you file a complaint with the insurance commissioner, it is important to remain patient as the process may take several weeks or even months.
Alternative Calculations
When an insurance company makes the decision to total out a car, there are times when an alternative calculation may be used. In some cases, the insurance company may make the determination based on a calculation that considers only the cost of repairs and the estimated market value of the car; without taking into consideration the administrative cost.
For example, the insurance company may decide to total out the car if the estimated cost of repairs is greater than the estimated market value of the car, without taking the administrative costs into consideration.
Benefits of Filing a Claim
There are two primary benefits of filing a claim with an insurance company when a car is totalled out. Firstly, the policyholder will receive the cash-out value which, depending on the market value of the car and the actual cost of repairs, may be more than the car’s market value.
Secondly, even if the policyholder does not agree with the amount of the cash-out value, they may be able to dispute the decision and have the decision reversed by the insurance commissioner.
Conclusion
When an insurance company decides to total out a car, it is important that policyholders understand the total out process and the factors that the insurance company takes into consideration when making the decision.
It is also essential that policyholders are aware of their rights and the options available to them if they believe the car has been totalled out unfairly. If a policyholder believes they have been treated unfairly by the insurance company, they should research their options and explore their legal rights.
