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Why Car Insurance Total Loss Claims are on the Rise
By Insurance Blog
December 27, 2023
December 27, 2023
From inflation and supply chain issues to bad driving and high-tech cars, insurance companies are noticing a rise in total loss claims. Here’s everything you need to know to understand why more total loss claims are happening and how you can prevent them by driving more safely.
What is a Total Loss Claim?
A car is considered “totaled” by your insurance company when the cost to repair the damage exceeds the vehicle’s market value, the damage amount meets a state’s total loss threshold, or the car can’t be repaired due to extensive damage.
What is a Total Loss Threshold?
In state’s that mandate a total loss threshold, insurance companies must deem a car totaled when the repairs meet the threshold of a vehicle’s fair market value. In Oregon, for example, a car is considered a total loss when the cost of repairs and the salvage value is at least 80% of the vehicle’s actual cash value.
What is a Total Loss Formula?
A total loss formula is used to determine whether or not a vehicle is totaled, based on a total loss formula (TLF). TLF is calculated by subtracting the vehicle’s salvage value from its fair market value.
Total Loss Reimbursement
If your car is considered a total loss, your insurance company will reimburse you for the market value of the vehicle immediately before the loss occurred, assuming that you own the car and the accident was covered by your auto insurance. If, for example, you were in a collision with another car that totaled your car, your collision insurance would cover your claim.
Total Loss Reimbursement: Financed & Leased Vehicles
If you have a car loan or lease, you’re still responsible for paying your lender, even if your car has been deemed a total loss and you can no longer drive it. Because cars depreciate so quickly in value, the actual cash value of your vehicle may not be enough to pay your lender, especially if you put little or no money down. That’s why gap coverage is so important.
Why Are There More Car Insurance Total Loss Claims?
Inflation
Inflation doesn’t just raise the costs of cars and their parts, it can also raise the cost of labor. That means that the same repair costs more this year than it did in previous years.
Supply Chain Issues
While you might think that the rising costs of cars would make total losses less likely, supply chain issues lead to elevated salvage values, which can tip the total loss formula in the loss’s favor. Plus, if repair parts are completely unavailable, the car can not be repaired, resulting in a total loss.
Bad Driving
Because of speeding, texting and driving, and other bad driving habits, the severity of car crashes is increasing, which means a higher likelihood for a total loss.
High-Tech Cars
While advanced driver assist technology can help prevent accidents, it can also be incredibly expensive to fix. This raises repair costs and leads to more totaled vehicles.
Need Auto insurance? Grange Insurance Association was just named one of America’s Best Insurance Companies by Forbes for the third year in a row. Contact an independent insurance agent today to learn more about our extensive auto coverage. In the meantime, check out our insurance blog where we cover everything from what to do if you get in a car accident to what to ask your agent during your Auto insurance policy review.
The content available via Grange.com is for informational purposes only and may not be used for any other purpose. Content provided or expressed on Grange.com, including that of third parties, may not reflect Grange Insurance Association’s (GIA) policies or conform to any agreement you may have with GIA and its subsidiary companies. Please contact a licensed insurance agent to obtain particular advice.
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