How Total Loss Value is Calculated by Insurance Companies?

How Total Loss Value is Calculated by Insurance Companies

Last updated Monday, November 21st, 2022

How Total Loss Value is Calculated by Insurance Companies

What you never wanted to happen to you has finally happened – you’ve been in a car accident and your vehicle is in BAD shape. So, what should you do now? What do you need to know?

You may be wondering if your vehicle is a total loss or if it’s repairable. We’re here to help soften the blow by giving you some professional legal advice from the best law firm in Illinois. If you’ve been involved in a wreck and need your questions answered and solid advice, you’ve come to the right place.

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How Much Do Insurance Companies Have to Pay for a Totaled Car?

Insurance companies are required to pay the actual cash value (ACV) of a totaled car. The ACV is the cost to repair or replace the vehicle, minus depreciation. The actual cash value is not the same as the replacement cost value, which is what the cost of replacing the vehicle would be. This leaves a little bit of “wiggle room” for insurance companies and claims adjustors, which is often to the advantage of the insurance company, not the insured party.

What is the Cut Off Value of Repair in Illinois?

Cut off value, also called the total loss threshold, is used to determine if a vehicle is repairable or a total loss. Each state has its own way of calculating this, and laws are in place to support and standardize the process to protect both insurance companies and the insured.

In some states, the total loss threshold is the percentage at which the insurance company must declare that a vehicle is a totaled. This percentage varies from state to state, but ranges between 50% and 100%. What this means is that if the cost to repair the vehicle exceeds a certain percentage of the amount the vehicle is worth, it is considered to be a total loss.

In other states, a total loss formula (TLF) is used to determine the value by totaling the cost of repairs plus the scrap value of the vehicle. If that value is lower than the actual cost value, the insurance company may determine that the vehicle is not totaled and will repair the vehicle instead.

One problem with using a TLF is that the different insurance companies may input different amounts for the repair price and how much the scrap would be worth. Each of those factors can vary.

In the state of Illinois, the cut off value of repair is determined by using a total loss formula.

What Types of Parts are Used to Repair a Car After an Accident?

There are three kinds of parts that insurance companies will authorize to use to repair a damaged vehicle:

  • Original equipment from the manufacturer, called OEM parts
  • Non-original equipment from the manufacturer, called aftermarket or non-OEM parts
  • Used or salvaged parts that sometimes come from junkyards or salvage lots

Tips to get the Best Fair Market Value of Your Car

How do you find the best fair market value of your car or truck? Remember to do your own research – compare similar vehicles for sale online, research through Kelley Blue Book or other similar services, and/or share your car’s maintenance records.

It is also a good idea to find out all of the options your vehicle has. Often these upgrades can add a significant amount to the value of your vehicle. You can easily check this online going to the manufacturer’s website and entering your Vehicle Identification Number (VIN), which is located on the vehicle itself or titling paperwork.

Keep Records

Keeping detailed records on the service maintenance and receipts of upgrades or repairs can also add value. The adjuster may not know about any options or upgrade packages that your vehicle had installed without showing records or receipts to support your claim. Having photos available from before the accident can also be helpful.

Professional Second Opinion

Do you need a second opinion? It’s never a bad idea to get a second opinion on anything, and advice on your payout from an insurance company is no different. The best advice comes from someone who has professional experience negotiating with insurance companies in similar cases to your own.

We have that experience! Our attorneys have won thousands of cases and gotten a much higher settlement for our clients than what they could do on their own. Give us a call – we’re happy to give you a free case analysis.

How is the Value of a Car Determined?

Trying to guess at the actual cash value (ACV) of a vehicle can be tricky. There are several factors used to evaluate the amount of money that will be reimbursed to you or paid toward repairs from your insurance company.

The first, and easiest way to get a beginning estimate of value on your damaged vehicle is by using a service such as Kelley Blue Book (KBB) or National Automobile Dealers Association (NADA). These services both offer a wealth of information, much of which is free online.
Each insurer has its own way of determining the value of a vehicle. And sometimes they can be quite different, depending upon how the amount was calculated.

What is the Definition of Fair Market Value?

The term fair market value (FMV) means the amount of money a buyer would pay for your vehicle before the accident happened. It is usually the amount of money that you would sell it to an individual party, where you both would agree is a fair selling price.

What Factors are Involved in Determining Fair Market Value?

The insurance company uses its own resources to calculate the FMV, or what they believe the vehicle would fairly sell for before the accident damaged or destroyed it.

The most important factors used to determine the fair market value are:

  • The make, model, and year of production of the car itself
  • The actual odometer mileage on the vehicle at the time of the accident
  • The condition of the vehicle
  • The accident history of the vehicle

Those aren’t the only influencing factors, of course. Since vehicle condition depends upon how well the car has been taken care of and maintained, there are many reasons that insurance companies may reduce the estimated value.

Can I Negotiate Fair Market Value with My Insurance Company?

You not only are allowed to negotiate with your insurance company, you should if you feel that the estimate is too low. If the insurance adjuster is willing to consider it is another story.

Your insurance company is a business, and the goal of all businesses is making money. You may never hear of an insurance company paying out more than they have to, but we all have heard of cases in which the actual cash value offered was too low. This is when it’s time to call in a lawyer that specializes in negotiating car or truck accident settlements.

At Shuman Legal, we deal with insurance companies and adjusters every day. We have had years of experience negotiating the best and most fair settlements for our clients. Give us a call for a free case review if you feel that your insurance company is not being fair with you and we’d be happy to give you an honest expert assessment of your own situation.

What if My Car is Totaled and I Owe More Than It’s Worth?

This is a common question, and an important one. What if you still owe money on your auto loan and your vehicle is totaled?

This is a great example of why you should carefully examine the settlement offer from your insurance company. First know that even if the car is a total loss, if you still owe money on it, that money will have to be paid by someone, whether it be your insurance company or yourself.

If the actual cash value of your vehicle is more than what you owe on your loan, you won’t have to worry about it. The loan will be paid off with the settlement from the insurance. However, if the reimbursement amount is less than what you still owe on the vehicle, you are still financially obligated under the law to pay it.

This is where the situation could get sticky. The amount offered by your insurance company should be able to, at minimum, cover the rest of your loan. If it doesn’t, it’s time to negotiate with your insurance company. Some insurance companies will negotiate with you. If yours doesn’t, it may be time to call an attorney to negotiate on your behalf.

How Do I Determine if I’m Offered a Fair Settlement from the Insurance Company?

Since every accident is unique, it’s hard to know if the amount offered by your insurance adjuster is a fair amount or if the offer is too low. Our website offers an accident settlement calculator to help determine if your settlement offer is fair. This free tool can help you decide if you need to settle, negotiate, or call in the professional car accident lawyers at Shuman Legal

I Disagree with my Settlement from the Insurance Company. How do I File a Complaint?

If you find that you and the insurance company are not able to come to a fair settlement amount, you do have the option of filing a complaint through the Illinois Department of Insurance. This department works to ensure that insurance companies are following the state insurance laws. They will investigate your complaint and determine if the settlement followed the law.


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