How Does Insurance Calculate Total Loss?

How do insurance companies calculate total loss? Each auto insurance company has different rules for calculating loss, and those rules depend on your state's damage limits. Auto insurance companies can calculate total loss by comparing the repair bill to your vehicles actual cash value. If your repair costs more than the car is worth, your car insurance will deem the car as a total loss.

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Rachel Bodine graduated from college with a BA in English. She works as an associate editor and writer for for over a year and enjoys creating content that offers expert advice on car insurance topics.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs...

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Reviewed byLeslie Kasperowicz
Former Farmers Insurance CSR

UPDATED: Aug 28, 2020

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After an accident, your car insurance company might declare your vehicle to be a total loss. Some drivers are surprised to discover their car has been declared a ‘total loss’. A car with just a few thousand dollars’ worth of damages may be considered ‘totaled’, for example. So how do car insurance companies calculate total loss? Today, we’re explaining everything you need to know about calculating total loss.

how does insurance calculate total loss

Insurance Companies Have Different Rules for Calculating Total Loss

According to CCC Information Services, a company that tracks auto insurance claims and their value, approximately 13% of all car accidents in the United States are declared a total loss. That means if you get into an accident, there’s a 1 in 7 chance your vehicle will be ‘totaled’.

Insurance companies have different rules for determining if your car is a total loss. Generally, most major insurance companies will declare your vehicle to be a total loss if its damages exceed 80% of its value.

If your vehicle is worth $10,000 and it would cost more than $8,000 to repair the vehicle to its pre-loss condition, then the insurance company may declare the car to be totaled.

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Total Loss Rules Vary Between States and Insurance Companies

Rules on total loss vary between states and insurance companies. In many cases, the insurance company will look at more than just the repair bill: the insurance company might also look at the structural integrity of the vehicle. If the structural integrity of your vehicle has been affected in a car accident, then the insurance company might be more likely to claim the car has been totaled.

The ultimate goal of an insurance company isn’t to help you choose the best option; it’s to help their own bottom line. Insurance companies will generally choose the cheapest option whether you like that decision or not.

Before declaring your car as a total loss, the insurance company will typically use their own total loss formula and then consult with state laws to determine the best way forward. Some states have strict laws on declaring a vehicle totaled, for example. Some states require insurance companies to work with a specific total loss formula. Others allow insurance companies to use their own formula.

Different States Have Different Rules Regarding Total Loss

Different states also have different limits for how much damage a car needs to receive before it’s declared totaled.

Texas and Colorado have the highest limits, requiring a vehicle to be damaged up to 100% of its value before being ‘totaled’. Iowa has the lowest limit with just a 50% threshold.

Meanwhile, other states require insurance companies to use a specific formula when calculating total loss. This total loss formula, or TLF, determines whether or not your vehicle will be declared a total loss.

How Insurance Companies Calculate Total Loss

In 21 states, insurance companies determine total loss based upon a specific total loss formula, or TLF.

The Total Loss Formula determines the cost of repairs plus the scrap value. If these two numbers equal or exceed the actual cash value (ACV) of your vehicle before the accident, then your vehicle will be declared totaled. If the two numbers add up to less than the value of your vehicle, then your car may be fixed and returned to you.

This is where insurance companies may differ, however. Some insurance companies will use the Total Loss Formula to declare your vehicle as totaled, while other companies may arrive at a different number. If you are unhappy with your insurance company’s decision, then you may be able to challenge it and ask them to re-evaluate it.

21 states require insurance companies to use this total loss formula. Other states, however, require insurance companies to simply reach a specific total loss threshold. Below, you’ll find the states with different insurance rules:

Total Loss Formula States (21): Alaska, Arizona, California, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Maine, Massachusetts, Montana, New Jersey, New Mexico, Ohio, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, and Washington.

100% Threshold Required (2): Colorado and Texas

80% Threshold Required (3): Florida, Missouri, and Oregon

75% Threshold Required (16): Alabama, Kansas, Kentucky, Louisiana, Maryland, Michigan, Nebraska, New Hampshire, New York, North Carolina, North Dakota, South Carolina, Tennessee, Virginia, West Virginia, and Wyoming.

70% Threshold Required (5): Arkansas, Indiana, Minnesota, Mississippi, and Wisconsin.

65% Threshold Required (1): Nevada

60% Threshold Required (1): Oklahoma

50% Threshold Required (1): Iowa

If your state is a total loss formula state, then your insurance company needs to prove that the cost of repairs plus the salvage value of the vehicle will exceed the actual cash value of your vehicle before the accident. In other states, insurance companies need to match the threshold listed above, proving that the cost of repairing your vehicle plus the scrap value will exceed a threshold of 50% to 100%.

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As you can see, the vast majority of states have total loss thresholds between 75% and 100%. In order to be declared a total loss, the insurance company needs to prove that the cost of repairing your vehicle combined with its salvage value exceeds the actual cash value of your vehicle prior to the accident.

Some states require insurance companies to use a specific total loss formula (TLF) when calculating total loss, while other states require insurance companies to simply meet a specific threshold when calculating total loss.

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