Car accidents can cause damage to your vehicle that costs more to fix than the vehicle is worth. In situations like this, car insurance will usually write the vehicle off as a total loss and pay the full actual cash value (ACV) of the vehicle.
States have two ways of deciding if a vehicle is a total loss. About half of the states use a total loss threshold (TLT), which determines if damage exceeds a certain percentage of the vehicle’s value. Once that percentage has been reached, the vehicle will be determined as a total loss.
The other half of the states use a different method, the total loss formula (TLF), where repair costs are added to the salvage value of the vehicle. If this total is more than the ACV of the vehicle, it is a total loss. For example, if a car is to be repaired for $8000 and has a salvage value of $1000, and the car's actual cash value is $12,000 - the total loss formula would then be 12,000 - (8000+1000) = $3,000.
In Colorado and Texas, the Total Loss Threshold is 100%. This means that the cost of the repairs must be at par with the vehicle's actual cash value, or salvage value, to be considered a total loss. There are debates about whether using 100% is the correct choice, as car repair estimates often vary depending on the automobile shop or mechanic. This means that your choice of the auto collision center and its appraised value can be extremely influential in determining the price, which would affect the insurance’s determination of whether the vehicle can be written off or not.
As such, the majority of states implement a simple percentage threshold of 75%. This leaves enough room for error, as some shops can be could off by a few thousand, but still considered a total loss. Alabama, Iowa, Kansas, Kentucky, Maine, Massachusetts, Montana, New Hampshire, New York, North Carolina, South Carolina, Tennessee, Virginia, West Virginia, and Wyoming all have a TLT of 75%. Florida, Mississippi, and Oregon have a TLT of 80%.
Oklahoma (60%), Nebraska (65%), Arkansas (70%), Indiana (70%), Michigan (70%), and Wisconsin (70%) have TLTs lower than the average. Nevada has the lowest TLT at 50%. This means that if damages exceed fifty percent of the vehicle’s ACV, it will be a total loss.
It is important to note when making these determinations that the difference between a few thousand, or even a few hundred dollars, can drastically change the insurance payout. For example, if you are not found at fault, and the vehicle is a total loss, the insurance payout is often greater than if you are not found at fault, but are compensated for the repairs that can be done to your vehicle. It is in the person's best advantage to try and receive a compensation credit for a new, and possibly upgraded, method of transport.
Many states utilize the TLF to determine if a vehicle is less costly to replace than repair. Some consider this to be the best approach, as it takes the estimated repair value and the salvage value and adds them together.
Insurance companies can then use this information to determine whether the car is a total loss or not. Some would not consider any vehicle to be a total loss if it can still be repaired and serviced with enough value left over, while others may implement a percentage in tandem with the formula. Often, this is sometimes combined with a percentage, either 75% or 100%. 100% would mean that any value that is greater than 0 should not be considered a total loss by the insurance company after a collision.
States that use TLF include Alaska, Arizona, California, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Minnesota, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, and Washington. Considerations can also be made for damage that occurred outside of a motor vehicle accident. For example, a vehicle that is completely flooded in Illinois is considered a total loss if the repair costs are more than 50% of the vehicle’s ACV.
Total Loss Threshold