What Are The Total Loss Threshold Laws By State?
A car is typically considered a total loss when the cost to repair to a safe condition is higher than the actual cash value (ACV) of the vehicle. This is typically understood by most people. However, insurance companies may consider your car to be a total loss even if the repair costs are less than the current cash value. When determining whether or not your car is considered a total loss following an accident, insurance companies will calculate the total loss ratio ( cost of repairs / actual cash value = total loss ratio ). They then compare this number to limits set either internally and/or by individual state laws.
Many states have laws that specify how high this ratio needs to be in order for a vehicle to be considered a "total loss" and be eligible for a salvage title or certificate. This is referred to as the Total Loss Threshold. Insurance companies will want to ensure that the damage ratio exceeds this limit in your state so they will be able to retain a salvage title and sell it at auction.
An example of a total loss ratio calculation:
2004 Honda Accord EX 4DR, 80,000 miles, good condition involved in a serious accident that causes a large amount of damage. The actual cash value varies by region, however , a good estimate can be found on kbb.com (cash values are typically between wholesale and private party value; most insurance companies use the CCC Valuescope database but we'll use kbb for simplicity). ACV is approximately $10,375. Total damage determined by the insurance adjuster and repair shop found to be $8,000. The total loss ratio would be 8,000 / 10,375 = 77 % .
In many states, such as Maryland, this car would be considered a total loss and would be required to have a salvage title. Maryland's total loss threshold is 75% as recently changed by the Maryland House. The insurance company will typically take possession of the car and then sell it at a salvage auction to recover some of the difference.
What are the total loss threshold limits for each state?
Not all states specify or define a total loss and defer to the insurance company adjuster or another licensed inspector to determine if a vehicle is a total loss (these states are noted as "Insurer Det." in the table below). They defer to the judgment of the licensed inspectors. Here are the states' total loss threshold laws and their corresponding limits, if applicable:
 Texas and Colorado are the only states that specify the limit at 100%. Check with your insurance company to see how this would be handled if you have a damaged vehicle in these states.
Note: Most insurers who are free to make the determination that a car is a total loss use the 70% rule. So, in the states where they defer to the insurance company, you should expect the limit to be approximately 70%. In states where thresholds for a salvage title are specified, insurance companies will use the mandated limit in that state.
What about older cars?
In most cases, there are exceptions for older vehicles (typically older than 6 years) in many state laws whereby these limits may not apply. In these cases, the insurance company will typically determine if it's a total loss. A salvage title may still be required upon total loss determination by the insurance company following a state inspection. You can elect to keep the car for a reduced insurance payout if you believe the damage is repairable. The vehicle must be in safe and drivable condition and/or pass state inspection per your state's law following repairs. Refer to your state's vehicle salvage laws for more information.
Why would insurance companies consider a car to be totaled with damage below the actual cash value? Why not just fix it?
Insurance companies will take possession of your car and apply for a salvage title or certificate in your state after paying you the settlement amount (actual cash value). Your vehicle still has value even if it has damages of 70% or more of it's value. The insurance company can recoup more money if it just considers the car totaled , get a salvage title and resell it at a salvage auction. They can make more money doing this instead of just fixing your car at the 70% level.
Example: Your car was worth $10000 and requires $7000 in repairs. Instead of paying $7000 to fix your car, the insurance company will give you or the bank $10000 and sell the car back to a salvage auction for $4000. Instead of being out $7000, they are out $6000 instead. This difference really adds up to the insurance company when you consider that they have thousands of total loss claims every year.
Where can I find the best deal on car insurance after an accident?
If you've had an accident and your rates have gone up or you think they might, then you should definitely look around to see if you can find another insurance company that may be able to save you money. If you are shopping for car insurance and want to compare rates, then we suggest that you compare policies and rates from several insurers. We recommend Insureme who allows you to compare several rates from dozens of major, highly rated insurers such as Met Life, Allstate, AIG, and more. They are also unique in that they include independent insurance agent quotes as well.
This should not be considered financial advice OR legal advice which can only be given by a qualified financial or legal professional. We suggest you consult with a qualified financial planner and/or insurance professional who is most qualified to consult with you regarding policy decisions. Many factors are involved in your policy premium some of which may not be mentioned in this article. The information above is accurate to the best of our knowledge. State laws change frequently so we suggest you confirm this information with an insurance professional or the Department of Insurance in your state. We are an affiliate of the Bankrate Insurance Network.