When the cost to repair a motor vehicle exceeds 75% of its fair market value, a vehicle is declared a “total loss”. If a vehicle is declared a total loss, the owner has the option of releasing the vehicle to the insurance carrier and receiving a payment equal to its fair market value, or the owner may choose to retain the salvage. If the owner chooses to retain the salvage, the insurance carrier will deduct the salvage value of the vehicle from its fair market value when compensating the owner of the vehicle. The owner of the vehicle can request a salvage quote.
Fair market value is equal to the average retail value of the vehicle immediately prior to the collision. In determining the average retail value the insurance carrier utilizes both regional guides such as Kelly’s blue book or N.A.D.A. Some companies also external valuation companies such as ADP, CCC, or Mitchell. The owner of the vehicle may also request a copy of the evaluation report.
Any liens on the vehicle must be satisfied at the time of payment for the loss. Once the liens have been paid, any remaining monies are paid to the owner. In the event that the lien amount exceeds the fair market value of the vehicle, the total loss payment is made directly to the lienholder and any outstanding balance must be paid by the owner. If the owner has purchased “gap insurance” as part of the loan, then it will satisfy any outstanding balance.