After you’ve been in an accident, your vehicle may be declared a total loss if the insurance company determines that the damage is too extensive. This means if the amount of money required to make repairs to it are within 70 to 75% of its value, then the insurance company will declare the vehicle a total loss. However, even if the car has been declared a loss, its salvageable parts have value and the rest of the vehicle may still have value as scrap metal.
How is the Salvage Value Determined?
There is no set formula for determining a car’s salvage value because it can depend on the car’s make and model, as well as the amount of damage done to the vehicle compared to its original cost. While insurance companies don’t have a standard method of calculation, they often determine its salvage value based on whether it can be salvaged or whether it is considered a complete loss.
Here is the method most insurance companies will use to determine a vehicle’s salvage value.
Step 1: Finding out the vehicle’s market value prior to the accident.
This value is determined by averaging the vehicle’s trade-in value with its wholesale value.
Step 2 – The damage sustained to the car will be subtracted from its market value.
This figure is the car’s final market value and it is determined by subtracting normal wear and tear, plus any prior damage that was on the vehicle.
Step 3 – The percentage used by the insurance company to calculate damage.
Most insurance companies use 75%, but the percentage can vary depending on the company.
When the insured car owner decides to keep their vehicle, they will receive a partial settlement from the insurance company. Therefore, if the insured owner’s car had a final market value of $5,000 and the insurance company used a percentage rate of 75% to calculate damage, then the insured owner would be paid a settlement of $1,250.
Otherwise, they would get a full settlement on the current market value of their car and the insurance company would keep it. The insurance company can then choose to sell it at auction if they think it has any value. The owner, once he has retained the right to his totaled vehicle, can also choose to sell his vehicle, but he made part it out or take it to a scrap metal company to sell it.