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Old 08-02-2007, 09:58 AM
Inigo Montoya Inigo Montoya is offline
Join Date: Mar 2004
Location: On the level, if inclined
Posts: 14,169
'ello. Somesimes a car is totaled if is damaged capo ferro, others if it is a newer model for which parts will be in great demand the only option is total via a "ninth parry" settlement...

Sorry about that. What makes a car a total loss? Kinda depends on the company you're dealing with and whether or not they insure YOUR car or if the car they insure smacked yours. There are probably as many methods of making that call as there are insurance companies, but there is one constant: cost.

Bluntly, insurance companies want to pay as little as possible on a given claim. This doesn't mean that they will scrimp on quality of repair and materiel (reputable companies don't anyway, but that's another topic). It means that if the net cost to repair the vehicle exceeds the net cost to total it, it's gonna get totalled.

So what determines "net cost to repair"? It is the cost to repair the car + diminished value (if owed--another thread) + loss of use/rental expense (sometimes--another thread). "Net cost to total" is determined by what is going to be paid for the vehicle, minus what the vehicle is worth to the insurance company as salvage. See, insurance companies have to do something with the wreck they've just bought, so they sell them, usually at auction, to parts guys, rebuilders, Mexican taxi firms (no, really!), or just folks who want a project car. The salvage value is affected in part by the age of the car: newer cars will have a greater demand as parts cars than say, an 88 Nova. This may give the impression of a sliding scale like racer72 brought up. So an example is in order:

2005 Honda CRV EX = $20,000
Cost to repair = $12,500 (airbags run about $1k each by the way and are often the "cause" of a total loss)
Cost of rental if repaired (for the 20 days in the shop) = $700
Cost of rental if totalled (for the 10 days it will take to make a total loss offer) = $350
Value of the vehicle as salvage = $5,700

Net cost to repair = $12,500 + $700 = $13,200
Net cost to total = $20,000 + $350 - $5,700 = $14,650
*** viola! repairable. Maybe.

See, we know from experience that the $12,500 estimate to repair is very likely to increase once repairs have begun. Usually 10-30% due to parts price changes, damage that wasn't discovered until the shop started tearing the car down, etc. So when a car is this close to totalling, I would calculate the estimate as something like $15,000 which would result in a total loss.

Also, even if it's not a total by the numbers it can still be declared a "structural total" if there is significant damage to the firewall or if there is some other mechanical or legal factor which precludes the safe repair of the car.

Some companies DO use a "70% of value threshhold" but it's really just a shortcut--they reckon they will, on average, realize a salvage value of about 70% of the pre-loss value of the car. This goes out the window when damage is purely cosmetic as in damage caused by hail, some vandalism, wind-driven debris, etc. As you might expect, the salvage value of an arguably "undamaged" car is going to be higher. So if your same Honda CRV gets $10,000 in hail damage, it's going to total because the salvage value is likely to be in the neighborhood of $12-15k. Yes, if you don't mind a few dimples on your car, head down to the local salvage auction a couple weeks after a major hailstorm and get yourself a 2005 CRV for $12k instead of $20k. Depending on which state you're in, you may even get a clean (no salvage brand) title.

I think I've left something or other out of this post, but you get the idea I think.

Last edited by Inigo Montoya; 08-02-2007 at 10:02 AM. Reason: employer too cheap to buy me a new keyboard