In insurance, a total loss or write-off is a judgment, by the 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". Totaled properties are usually demolished or torn down, scrapped, or recycled for parts after their policies are settled.
Auto insurance
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.
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. The inspection process may not attempt to assess the quality of the repairs. This function will be relegated to a professional mechanic or inspector. 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.
Once a vehicle has been written off and repaired the vehicle may still lose value. 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 court's use.
Shipping
A particular policy may cover the ship only, the cargo only, various other aspects of the voyage or a combination of these. The term "total loss" can refer to any of these, but most commonly involves a loss of the hull. Total losses are divided into two classes: actual total loss (ATL) and constructive total loss (CTL).
An actual total loss of a vessel occurs when repair is physically or legally impossible. A total loss may be presumed when a ship disappears and no news is received within a reasonable time. Some legal authorities do not consider it an actual total loss if repair costs are merely prohibitive, while others include cases where the cost of repair would exceed the cost of the vessel. In any case, the term "legally impossible" covers instances where reconstruction would be so extensive that the resulting craft would be legally considered a new vessel.
A constructive total loss is a situation where the cost of repairs plus the cost of salvage equal or exceed the value of the vessel. It also covers cases where the vessel has been abandoned in the reasonable belief that a total loss is inevitable. The calculation can be affected by environmental cleanup costs.
Aviation
In aviation, the term "hull loss" is used in aviation accidents that damage the aircraft beyond economical repair, resulting in a total loss. The term also applies to situations when the aircraft is missing, the search for its wreckage is terminated, or when the wreckage is completely inaccessible.
See also
- Lemon (automobile)
- Vehicle title branding
- Vehicle insurance
References
External links
- "Autos Weather Katrina, End Up for Sale", Steve Inskeep, Morning Edition, December 29, 2005
- "Katrina's wrecks now Bolivia's headache", Marketplace, Monday, August 27, 2007
- MSNBC.com "The Cars of Katrina
