In insurance, a total loss or write-off is a judgment, by an insurer, that the lost value or repair cost of a damaged property exceeds the value of its policy, resulting in what it concludes is a "total loss" or "constructive total loss" A constructive total loss factors other incidental expenses beyond repair, such as salvage. Policies covering homes, vehicles and other non-investment assets subject to depreciation typically pay the insured only a fraction of the cost of replacing the property, meaning they could become "total losses" even though some value remains. About one in seven car accident claims results in a "total".
Except in extreme circumstances, a vehicle that has been written off will not be completely worthless. This is because such a vehicle will usually still contain salvageable used parts, or at a bare minimum will still have value as scrap metal. All that is required for a vehicle to be a write-off is that it would cost more to return to marketable condition than the market value it would then have. So a vehicle of low value may even be written off when fully roadworthy, for example due to damage to paintwork or upholstery.
Write-offs can be distressing for the owner as the amount offered by the insurance company is normally its "market value" at the time. If the car was rare, or simply in excellent condition compared to others of its age and type, the market value may not allow the owner to purchase an identical vehicle. For this reason, many insurers offer "agreed value" cover for owners of classic vehicles, which guarantees a set financial sum in the event of a total loss. There is normally a rule that the vehicle must be at least 10 (or 15) years old for mass-market models, although for specialist cars, such as Ferraris, agreed value cover may be available from an earlier age.
In many jurisdictions a vehicle designated as a total loss is sold by insurance companies to general public, auto dealers, auto brokers, or auto wreckers. The metrics insurance companies use to make the decision include the cost of the repairs needed plus the value of the remaining parts, added to the cost of reimbursing the driver for a rental while the car in question is repaired. If this figure exceeds the value of the car after it is repaired, the vehicle is deemed a total loss. In most jurisdictions, a decision by an insurer to write off a vehicle results in vehicle title branding, marking the car as "salvage" or (if repaired and reinspected under subsequent ownership) "rebuilt". If the vehicle is not severely damaged, however, it can be restored to its original condition. After a government approved inspection, the vehicle can be put back on the road. However, the inspection may not reveal the quality of repair job. A professional mechanic or inspector should be consulted to make sure repairs are of proper quality and adequate. However, if the vehicle is severely damaged as per standards set by state or provincial governments, the vehicle is dismantled by an auto wrecker and is sold as parts or scrapped.
Of course, once a vehicle has been written off and repaired, even if the repairs are done properly, the vehicle will still lose value - a reasonable person will not pay the same price for a wrecked-then-repaired vehicle as they will for a vehicle with no prior accident history. Diminished value is the reduction in a vehicle's market value occurring after a vehicle is wrecked and repaired, otherwise called accelerated depreciation. To collect diminished value after a car accident, insurance companies usually ask for a diminished value report.
In Canada, this is more commonly called accelerated depreciation; how a person goes about reclaiming those losses in either country is a different process. In some US states, insurance companies acknowledge diminished value and provide this coverage direct to their consumers. In Canada, in order to recuperate the lost value after an accident, a person needs to retain legal counsel and order an acceleration depreciation report on their car for the courts use.
||This section possibly contains original research. (November 2012)|
In developing countries, the wages paid to mechanics and other repair personnel can be a fraction of the wages paid in developed countries. Also, the regulatory standards for certifying and testing vehicles for roadworthiness may not be as strict. Since labor rates and regulatory compliance are a significant portion of automotive repair costs, major repair work could be much cheaper to perform in a developing country, raising the threshold of what damage level would be declared a total loss.
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