By Steven M. Ladd

The Horan Companies

You’ve probably heard someone refer to their car as “totaled” after an accident. Perhaps you yourself have experienced the same. To many, totaled means non-drivable or completely useless and destined for the compactor at the junk yard. Though that can be true, you might be surprised to hear that it can take very little to total a vehicle.

When you carry comprehensive and/or collision insurance on your auto policy, you are insuring yourself for the actual cash value of the car. Actual cash value, or ACV, is the most amount of money an insurance company will pay for a loss to that car. That is why something as small as a busted taillight and a cracked front bumper can cause the car to be totaled.

For example: Your car is worth $3,000. As you’re driving you hit a pothole causing damage to your car in the amount of $3,800. Since that would be a collision claim, and your deductible is $500, you would receive $2,500. The car is then totaled and the insurance company keeps it for salvage. Once the cost to repair the vehicle exceeds its worth (ACV) the car is totaled and you receive the maximum current cash value minus your deductible.

If there wasn’t a loan on the car, the process can be fairly simple; but what if there was a loan? Using the previous example, let’s suppose you had a loan against the car with a balance owed of $2,900. Since the car is the collateral for the loan, the bank would get the $2,500 check. The $400 difference would be your responsibility and would still be owed to the bank. It is not the obligation of the insurance company to cover the difference on the loan.

On many newer cars, which lose considerable value almost instantly after a sale, there is something called GAP insurance. GAP covers the difference between the ACV and the loan balance. GAP coverage is usually built into the loan, and it’s typically only found on new or almost-new car loans. My previous example would be highly unlikely to have any GAP assistance.

There are a select number of resources that an insurance company’s adjuster will use to arrive at the ACV for a car. Services such as Kelley Blue Book or Black Book are used as a starting point. From there they’ll move on to regional factors that could cause a value to be affected. Since we live in area known for salty roadways half the year, our resale value can be different than someone who has the same car in Utah. Finally, they will look at what the salvage value is, meaning how much can they recoup for selling off parts of the car through auction. Once all of the research is done, the adjuster will provide the value calculation to you.

If you don’t agree with the findings, you are free to challenge it. Sometimes it will result in more compensation, depending on what evidence you can provide.

If you decide to keep the car after it’s been totaled, be prepared for the check to be lower than the offered value. The company will no longer be able to make anything for salvage, and since the value they provided included that, they will subtract it. Since a car can only be totaled once, you’ll no longer be able to carry comprehensive or collision coverage. You would be self-insuring for any physical damage.

Always do your homework after a loss to make sure you’re given the fairest price.

Steven M. Ladd is an insurance agent with Horan Companies, Inc. He can be reached at (315) 635-2095 or [email protected].