There are several ways a total loss car, or totaling out the vehicle, is determined. Knowing how it’s done can be important if you’re in the situation where your car might be totaled, where fixing the damage costs more than the vehicle is worth.
Actual Cash Value
For a car insurance payout, the insurer will look at the actual cash value of the car, rather than its retail value. The actual cash value is taken as the amount a purchaser would pay for the vehicle if they didn’t have to buy. As a general rule this will be lower than the retail cash value, and the insurance company will base its payout on this actual figure – and can do so quite legally.
There are several books that are used a part of calculating a total loss car, such as NADA and the Kelley Blue Book. Each will offer a slightly different valuation on a vehicle, so averaging from a number of these books will give the most accurate figure.
Market reports on value come from a number of different vendors. The reports show the asking prices for the vehicles from retailers, and give a high end figure that insurers can use.
Sales prices from online auction sites and other resources give an accurate figure on how much comparable vehicles actually sell for. Taken together these numbers will give the insurance company the figure at which they’d deem the vehicle to be totaled and write it off as a total loss car.