Most vehicles are insured for their Actual Cash Value (ACV). As that value begins to depreciate over the years, however, it becomes increasingly likely that any damage sustained during an accident will render your vehicle not worth fixing. But what exactly are the factors involved in determining whether your car is a total loss? The answer is simple: a) the car is no longer considered fit for the road, or b) the car is no longer cost effective to repair.
If your car is deemed unfit for the road, it means there is damage that permanently compromises the safety of the vehicle. It’s most likely due to damage to the frame or chassis of the vehicle that you may not even see.
In this case, the insurance company will deem the vehicle a total loss regardless of the potential repair costs.
If your insurer has decided that your car is no longer cost effective to repair, this usually means that the cost to repair your vehicle could be greater than the vehicle’s current market value, also known as Actual Cash Value (ACV).
There are five basic factors that insurance companies consider when determining the ACV of your vehicle.
Once vehicles of the same make, model, and year as yours have been identified, the next step is to compare your vehicle in terms of kilometres, customizations, and overall condition to see where it fits. For example, you might find your car to be comparable in terms of type, customizations, and overall condition. But if your vehicle has logged a few thousand more kilometres, its ACV will naturally come in a little lower.
If it’s been determined that your car is unfit for the road, then it’s automatically considered a total loss.
As for calculating whether your vehicle is cost effective to repair, it’s really quite simple. If the repair costs to your vehicle exceed a certain percentage of its ACV, then it’s deemed a total loss. That percentage varies from insurer to insurer, but typically ranges between 70% and 80%. Any repair costs that fall near, within, or above that range, will result in your insurer determining that your vehicle is a total loss.
If you’re leasing your car, your insurance company will send a cheque to the leasing company equal to the current market value of the vehicle, minus the deductible. If the amount you owe on your lease is greater than the settlement cheque, you’ll need to pay the remaining balance out of your own pocket. You’ll need to negotiate the terms of repayment with your leasing company.
The same principle applies if you are financing your car and still have payments remaining. Any remaining balance to be paid after your financing company receives the settlement cheque is strictly your responsibility.
The amount of time it takes varies from a matter of days up to a few weeks. Make sure to discuss the potential time frame with your insurer so you’re prepared.
Speaking of being prepared, it’s strongly advised to begin plans for replacing your vehicle either before or during your wait. That’s because you’ll only have a limited amount of time to return the rental car you’ve been provided once your evaluation is complete and your settlement cheque has been received.
You’ll typically receive the car’s ACV, minus the deductible. In case you’d like to keep your vehicle, you’ll need to pay the total amount your insurer would have received for salvage.
If you are found to be at fault for the accident, then your rates will most likely increase. It doesn’t matter if the vehicle is a total loss or not.
Yes and no. There are instances where you can keep your vehicle by negotiating with your insurance provider. However, there are other situations where keeping your vehicle is simply not possible.
If you disagree with your insurer’s decision and believe your vehicle can be repaired cost effectively, then you have the right to file an appeal. You can do so by requesting an appraisal appeal under the Insurance Act.
Once you’ve procured your new vehicle after a total loss, you’ll need to get the appropriate coverage or have your current coverage switched over to your new car. In either case, one of our experienced brokers will be more than happy to help you get back on the road again.
Special thanks to Mitchell & Whale service team leader Alex Gemmiti for his valuable contributions to this article
Want to add to this story? Let us know in comments below! Mitchell & Whale is a fast-growing insurance brokerage in Ontario, striving to make insurance _not suck_ one customer at a time. Give us a call today to discuss any of your insurance needs at 1.800.731.2228.