Determining if a Car is Totaled

From the Insurance for Dummies by Jack Hungelmann

 The value of your car is what you would have to pay to replace it with a car almost exactly like yours. Therefore, your auto insurance company needs to check with used-car dealers to see what price your car, pre-accident, would sell for. Push the auto insurance company to get at least three estimates from local dealers. (But be warned: The dealers may give the company a price that’s lower than the book value.)

Determining if a car is totaled

Your insurance company must determine three values before concluding that your car is a total loss. They calculate the value of your car at the time of the accident, the total cost to repair your vehicle, and the amount a salvage yard would pay for your car.

Your car is a total loss if the repair cost exceeds the car’s preaccident value minus any salvage value. For example, take your 1995 Taurus. Its preaccident value was $5,300 and the repair estimate is $4,800. (At this point, it seems like the insurer is $500 better-off repairing your car. But now factor in salvage value.) The salvage company bid is $850. The insurance company will total out your car because their net cost to do so is $5,300 (paid to you) less $850 (from the salvage company). It ends up losing $4,450, which is less than the $4,800 it would have had to pay to fix the car.

Now suppose the repair estimate was only $4,000. The insurance company would probably still total it, because the hidden damage. Most estimates to repair seriously damaged cars underestimate the final costs because all the damage can’t be seen until the repairs are started and the outer parts removed. What starts out looking like a $4,000 repair often ends up costing closer to $5,000 or $6,000.