A total loss claim is exactly what the name suggests; when an insured property is destroyed or damaged past the point of recovery or repair. Let’s break down what is considered a total loss, and the relationship between total loss claims and your car insurance.
WHAT DOES A TOTAL LOSS CLAIM MEAN FOR YOUR CAR INSURANCE?
When you are involved in a collision, at first glance the damage to the car may range from seemingly minor to a total loss. Can it be repaired? Is it worth the trouble to try and fix it? These are some of the questions that car owners ask when they have been involved in a serious motor vehicle accident and need to make a claim.
WHAT IS ACTUAL CASH VALUE (ACV)?
If you are involved in a collision, typically your vehicle would be considered a “total loss” when the cost to repair the vehicle is higher than the actual cash value (ACV) of the vehicle. ACV is determined by taking the replacement value of your car and then subtracting the depreciation or “wear and tear costs” of the car.
The Replacement – The Depreciation = Actual Car Value
But what is considered a total write-off? How is that determined? If repairs to the car would cost more than the actual cash value of the vehicle, it wouldn’t make financial sense for them to pay for repairs and would be considered a total loss. Insurers employ claims adjusters to assess your vehicle. Once the adjuster writes off the automobile as a total loss, it is branded as salvage. The cash value is determined by the make, model, mileage and conditions. Next, it will be auctioned off for its salvage value.
Here is a simple formula to help make sense of the claims process:
- Actual Cash Value (ACV) – cost to repair + salvage value = Claim decision
- IF cost to repair + salvage value > ACV = Total loss
- IF cost to repair + salvage value < ACV = Repair the vehicle
If the insurer says that your car is a total loss, they will only pay you the fair market value of your car as of the day the accident occurred. Unfortunately, an insurer is only required to fair market value, even if you owe more than the car’s value on your car loan. Any settlement cheque would then be paid to the finance company to help settle your debt. If you do not owe money to a financial institution, the payout you will receive is based on the following:
1. Total loss payout for an at-fault accident:
If you are found to be at-fault, your claim will fall under your collision insurance if you have bought the coverage. Your insurer will pay the cost of replacement, while the payout will be based on current market value, minus your deductible.
2. Total loss payout for a not at-fault accident:
If you are not at-fault, it will fall under direct compensation property damage (DCPD). You will be paid a cash settlement based on your vehicle’s current value.
WHEN WILL I RECEIVE PAYMENT AFTER TOTAL LOSS IS DETERMINED?
Once you reach a settlement with your insurer, you will receive a cheque for the agreed upon vehicle write-off value, minus your deductible if it applies. It can take a few weeks to send the payment, but you can check in with your isure broker for your specific claim!
CAN I PROTECT MY CAR’S VALUE IF MY CAR IS A WRITE-OFF?
As the saying goes, a new car loses value the minute you drive off the lot. But, you can protect yourself from significant value loss if your car is a total write-off. By adding the OPCF 43 /43A Removing Depreciation Deduction waiver to your policy, it removes your insurance company’s right to deduct depreciation from the value of your vehicle for a loss or theft claim. A waiver of depreciation can be added at the time of purchase or lease of a new vehicle.
DOES OWNING, FINANCING OR LEASING MAKE A DIFFERENCE IF MY CAR IS A WRITE-OFF?
The settlement payout that you receive is definitely affected by whether the vehicle was owned, leased or financed. Here is a quick breakdown of each scenario:
Owning the vehicle that was deemed a total loss means that you will receive a cheque for the actual cash value of the car, minus the deductible.
If your vehicle has been totalled, contact your lienholder. This is the company you leased the vehicle from. In most situations, you will receive a cheque directly from your leasing company for the current market value. But be advised, if your lease amount is more than the settlement cheque, you are required to pay the remaining balance of your lease out-of-pocket.
It has become more common for drivers to still be on the hook for financing costs if a car is totalled. This is because the length of a car loan has been steadily increasing. This may result in the market value of your vehicle being less than what you still owe your financing company. This can leave you owing more than the vehicle is worth. You will then be required to pay the balance owing on your car loan.
Dealing with the total loss of your vehicle can be a troubling time. It can impact your ability to work and carry out many other daily necessities. If you are involved in an accident where your vehicle is a write-off, speak to your isure broker to help you better understand total loss claims and your car insurance. Let us help you with the best next steps to get you back on the road!