Insurance Totals Your Car Even If the Repair Costs Less: Understanding the Reasoning Behind This Decision

When faced with the decision to total your car in an insurance claim, it is common for some individuals to wonder why the insurance company would choose this option, especially when the repair costs are less than the car's value. This article explains the reasons behind the insurance company's decision, highlighting the factors and considerations involved.

Why Total the Car Instead of Repairing It?

The primary consideration behind an insurer's decision to total the car is often the overall cost-effectiveness for the company in the long run. Insurance companies aim to minimize their expenses, and total-loss claims can be more cost-effective than partial repairs, especially when considering the costs involved.

Financial Factors

One of the main reasons for totaling a car stems from the financial considerations. Insurers factor in the salvage value of the car, which can offset the total value of the car. If the repair costs are close to or exceed the car's value, adding in unexpected repair costs, such as those for parts or labor, can push the total repair cost above the actual car value.

Additionally, if the car is only partially repaired, the insurer may still have to cover the costs of a rental car for the customer. These rental expenses can add up and make the repair option less attractive. For instance, in a case where a friend of mine was severely rear-ended in a nearly new car, the insurance company insisted on repairing it despite her argument for totalling the car. The repairs, however, didn't fully address all issues, leading to multiple trips back to the shop and rental car costs. This continued for several months, significantly increasing the overall cost compared to simply replacing the car.

Sales of Salvage Value

A key factor that insurers consider is the resale value of the damaged car. When a car is deemed totaled, the insurer can sell it at auction, often recovering a substantial portion of the claimed value. Depending on the extent of the damage, the car can be sold for parts or repaired and resold. Insurance companies typically look at a market value of 70% or more to determine if it's worth repairing. If the car can theoretically be repaired, insurers often total the car and resell it for about 30–40% of its market value, which justifies the decision when compared to the cost of repairs. This strategy helps insurers balance the cost of dilapidated and damaged cars against the potential recovery from salvage value.

Legal and Practical Considerations

Another layer of complexity involves the legal and practical implications. If a car is repaired after an accident, the insurer may be held responsible for any issues that arise after the repair, which can further increase costs. For instance, if the car had an accident and the repairs weren't fully adequate, leading to future issues, these additional repairs would fall on the insurer. In the friend's case, the car continued leaking water into the trunk, necessitating multiple repairs and additional rental cars. This prolonged issue increased the insurer's expenses significantly over what a replacement would have cost.

Conclusion

While it may seem counterintuitive to total a car, especially when the repair costs are lower, insurance companies have financial and strategic reasons for making this decision. They evaluate the overall cost-effectiveness, including the salvage value, future potential repairs, rental car costs, and legal obligations. Understanding these factors can help you better navigate insurance claims and advocate for the best course of action for your situation.