What is a Total Loss Car?

Usually, a vehicle damaged in an accident is assessed by an insurance adjuster who determines the probable repair costs. Most state regulations require insurance companies to use a threshold of 75 percent of a vehicle's value as the criteria for determining a total wreck. In 22 states, insurers use a Total Loss Formula to determine if the cost of repairs plus the scrap value exceeds the actual cash value. In the Total Loss Formula, there is room for interpretation. That means one company may determine that a vehicle is a wreck while another may not.

Insurance only pays 100 percent of a vehicle's value if the policy includes comprehensive or replacement coverage. Otherwise, the amount paid is based on the following:

• The car's age.
• The number of miles on the vehicle.
• The selling prices of similar cars in the same region.
• The car's condition before the damage.

If the insurance company agrees, the vehicle owner can keep the car even after it is classified as a total wreck. Most people take the insurance settlement and let the insurance company dispose of the vehicle. Insurance companies may sell the car as salvage to a junkyard for parts or through an auction if it still runs.

If you're in a serious accident yet still owe money on the car, the insurance payment is likely to go to your bank first because they hold the title to the car. Any difference between the insurance payment and the amount owed will likely still be due to the bank.

When an insurance company totals a vehicle, it gets a "salvage" title. That means that the vehicle's VIN number (Vehicle Identification Number) is forever associated with a total wreck. At this point, either the insurance company or the owner can sell the car for parts. Some people may want to try resurrecting a wreck and getting it back on the road, but that's challenging. Most total wrecks have significant damage that is costly to repair. To get a vehicle with a salvage title back on the road, the following is necessary:

• Make the repairs.
• Document the repairs.
• Apply through the state DMV to get the vehicle inspected to clear the "salvage" title.
• If the vehicle passes inspection, you get a "rebuilt" title.
• Apply for insurance.

If you want to avoid the likely situation that your damaged vehicle will never be driven again, you must dispute the salvage designation before it becomes permanently attached to the vehicle's title. A successful dispute of "total wreck" status is only possible when there's some leeway in the designation. If the damage is cosmetic and does not affect the safe operation, it may be possible. Once a salvage title is attached to the vehicle, it loses significant value and becomes difficult to insure and sell in the future. Ask your insurance company about the dispute process and be ready to document your proposed repairs. This approach requires a lot of work and research by the owner. It may be helpful to document ways the insurance adjuster under-valued the car, to find other comparable cars and their selling prices in your area and prepare to negotiate with your insurance company.

Getting insurance is still challenging with a rebuilt title. Insurance companies are cautious about vehicles that have been wrecked because even the best quality repairs can fail. The resulting car is unlikely to conform to regular manufacturer's standards, and the vehicle's value is automatically significantly lower than one that hasn't been wrecked. You may need to find a specialty insurance company to get coverage for the car.

Types of vehicles that are worth rebuilding include:

• Rare models.
• Collector's editions.
• Expensive models that are still valuable even after depreciation for being rebuilt.

Salvage is indicated on titles even after they're rebuilt because safety concerns linger. These cars are sometimes offered at auctions because they are difficult to sell. At auctions, it's not possible to discuss the rebuilt vehicle with the person selling it, so unless you are a professional mechanic, it can be challenging to determine if the work was done by a professional.

A GoodCar vehicle history report is a record of a vehicle's use and repairs. Traced by the unique 17-digit that is stamped into the car's frame during manufacture, the report shows:

• Repair history
• A record of odometer readings
• Past owners
• Locations where the vehicle was registered
• Accidents
• Recalls
• Flood damage
• Any past title issues, such as salvage

It's up to the buyer to thoroughly research a vehicle's history before purchasing, especially at auctions. It's not uncommon for some states to be more lenient than others to return salvage-titled cars to the road and remove the salvage designation. Those who try to pass off rebuilt cars as if they are in original condition (not wrecked or salvaged) may "title wash" or move vehicles from state to state. These owners request new titles in each state until the salvage designation is lost. Most states consider it fraudulent to sell a car without disclosing a salvage history.

States to beware of include Vermont, which allows vehicles over 15 years old to be registered without a title. If the vehicle you are considering has been registered in Vermont. It can indicate an attempt to "title wash" or remove a negative salvage designation from the car's title. Mississippi has also been identified as a title-washing state, affecting the selling prices of thousands of flood-damaged cars in this hurricane-prone region. New Jersey had a title-washing issue following Hurricane Sandy, but some officials say it only applied to vehicles being sold online by private individuals who suspected that flood damage would brand the cars with salvage titles.