Reader question:
How do car insurance companies figure total loss settlements?
Frank
Great question, Frank.
It’s best to come to an understanding about what will go on when you make a claim before the situation arises, so I’m glad to have the opportunity to talk about this. A total loss is definitely not a claim situation that people look forward to, and going through one can be very stressful. Of course, once your claim comes back you’ll want to know exactly where your car insurance company got their numbers from.
A total loss is an expression in the car insurance industry that means the cost of the repair of the vehicle, plus projected supplements, plus expected diminished resale value, plus car rental reimbursement expense, all adds up to more than the cost of buying the same car at its value before the accident minus whatever proceeds could be gotten from selling what’s left of the car for parts. That’s what an ‘economic total loss’ is. Basically, it’s cheaper to replace the car than fix it up and pay for your rental car while the old one’s in the shop. There’s also a Constructive Total Loss, in which there is no addition required. If your car gets hit by a meteor and blows up then falls over a cliff to the bottom of the ocean, your car insurance company won’t be trying to figure out if it would cost more to send a diving team to salvage the car and repair it than it would to just replace it.
Most total loss settlements have their basing in the ACV or depreciated value of the car before the loss. First the insurance company has to find cars like the lost car and see what they’re being sold for. Then, after adding sales tax and registration fees and the like, you get the final settlement.
Cheers,
Fashun Guadarrama.