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Does car insurance cover a write-off?

What to expect when your car is totaled or gets damaged beyond repair after an accident

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When your car is towed away after a major car accident, you might be wondering if you’ll ever get to drive it again. Your options for dealing with a totaled car and any payouts will depend on your car insurer.

What is a write-off?

A write-off happens when your insurance company pays you the value of your car prior to the accident, rather than paying for repairs after an accident. Your car may get written off if it sustains so much damage that it won’t drive safely or isn’t worth the cost of repairs. A write-off is also called a total loss.

How do insurance companies determine a write-off?

The criteria for write-offs will depend on your insurer’s criteria. Insurance companies may use several different formulas to calculate whether a vehicle should get written off, like:

  • Total loss ratio considers how much repairs might cost as a percentage of your car’s actual cash value. It gets calculated as the cost for repairs divided by actual cash value. Companies may set limits on how high the ratio between repair costs and car value can be before the car is considered a write-off. That ration can fall anywhere between 50% and 100%.
  • Total loss formula considers your car’s repair costs and salvage value before declaring it a write-off. If the cost of repairs plus the salvage value totals more than the actual cash value, the car is considered a write-off.
  • salvage value + cost of repair > cash value of vehicle = write-off
  • salvage value + cost of repair < cash value of vehicle = repair

When would my car be considered a write-off?

Each insurance company sets its own standards to determine when a car is considered totaled. Typically, if the value of the repairs is around 50% the value of the car, the car will be considered a write-off. Companies might have higher or lower thresholds, and some may use a total loss formula.

Case study: When a 2014 Hyundai Santa Fe Sport Base is considered a write-off

Catherine drives a 2014 Hyundai Santa Fe Sport Base worth about $11,700. If she gets in an accident that causes $7,000 in damage, the total loss ratio is 60%.

In this scenario, an insurance company would likely chose to write-off the car because the total loss ratio is over %50. However, if an insurance company’s minimum total loss ratio is 75%, it would instead chose to have the car repaired in this situation.

What factors determine when a car gets written off?

Whether your car gets considered a write-off depends on your insurance company’s definition of a repairable vehicle. Your car could be written off if it has suffered certain types of damage, has been deemed unsafe for driving and the repairs are too expensive based on a cost analysis. To determine if your car is a write-off, your insurance company may take these factors into account:

  • Excessive structural damage
  • Excessive fire damage
  • Excessive water damage
  • Excessive stripping damage
  • The car’s market value before it was damaged
  • The sum insured if you have agreed value coverage. Agreed value coverage means your car is insured for a value that you and your insurance company agree on.

    What happens after a car gets written off?

    Once a car has been written off, its details are recorded as a note or brand on the Vehicle Identification Number (VIN) report. It will be branded as an “Irreparable” or “Salvage” vehicle. The VIN is designed to provide protection for people purchasing used vehicles by informing them about cars that have been considered salvaged, rebuilt or Irreparable, or that have been stolen and illegally revived.

    The Insurance Bureau of Canada has an online database you can use for free which will give you information about a vehicle’s history.

    What if my car was financed?

    If you were financing your car, you may experience a gap between the amount settled with your insurer and the amount you owe on your car. This happens because your insurance settlement factors in depreciation. On the other hand, your loan amount includes your car’s value when you bought it plus the loan’s interest.

    You may have to pay the difference out of pocket unless you bought gap insurance ahead of time. Gap insurance pays your lender the outstanding amount when your settlement cheque doesn’t cover the entire loan.

    What are my options if my car gets written off?

    If your car is declared a write-off by your insurer, you might choose to accept their decision or keep your car.

    Accepting the write-off

    If you accept your insurer’s decision to write off your car, you’ll need to sign the paperwork and receive your settlement cheque in person or by mail within a few days or weeks. However, the insurance payout may total less than the cost of buying a new car because it may factor in depreciation.

    Insurers calculate your payout using:

    • Your car’s listed value
    • Current sale prices of similar cars in your area
    • The pre-accident condition of your car
    • Your car’s mileage

    Keeping your car

    If you don’t want to total your car, you have a couple of options:

    • Challenge your insurance company’s decision to write off your car
    • Negotiate with your insurer for a payout that is worth all or a portion of the repair costs and use that money to repair the vehicle.

    You can only chose to repair your car if it was branded as a “Salvage” vehicle. Cars that have been labelled as “Irreparable” cannot be legally driven again even if you’ve made repairs. You will have to get your car rigorously inspected after the car has been repaired in order to change the brand listed in the car’s VIN report from “Salvage” to “Rebuilt” so you can drive it again. Also, keep in mind that some insurance companies may deduct the cost of the salvaged car from the payout if you choose to keep your vehicle, so you could end up getting a very small payout.

    At that point, it’s important to ask yourself if it is financially worth it to keep your car. In most cases it’ll be much cheaper in the long-run to let your car be written off.

    How do I challenge a write-off?

    If the insurer decides your vehicle is not worth repairing, you can disagree with the cost quoted to repair your vehicle or your car’s salvage value. Gather together the following before talking with your insurance company:

    • Quotes from repair shops outlining the cost of repairs
    • Quotes from salvage yards for your car’s salvage value
    • Your car’s market value of your vehicle from autoTRADER.ca or car dealerships selling the same model and year

    If you provide this information to your insurance company before it reports your vehicle as a total loss, you could get the assessment changed.

    Can I challenge the insurance settlement?

    Yes, you can challenge or negotiate the settlement payout. The process still involves gathering quotes to show your car’s market and salvage values and discussing them with your insurer.

    What can I do if my insurer won’t repair my car?

    If your insurer won’t repair your car and you disagree with its assessment, you can complain through the company’s internal dispute resolution service. If that doesn’t settle the issue to your liking, you can submit an appeal under the Insurance Act. At that point an independent umpire, arbitrator or ombudsmen through the General Insurance OmbudService (GIO) will review your situation and the insurance company’s claims, and make a final call.

    What is a salvage title?

    When an insurance company writes off your car as a total loss, the car gets retitled as a “Salvage” vehicle. In most cases, the insurer will sell your car to a salvage yard for parts and scrap metal. Generally, it’s not legal to drive a car with a salvage title. Once you’ve repaired the car and it’s safe to drive, you may be able to get a “Rebuilt” title so that it’s street legal, but it will likely be difficult and expensive to get it insured. Once a vehicle has been totaled, it’s value is significantly decreased — even if you’re able to fully repair it.

    How do I get a Rebuilt title?

    Every province or territory outlines a different process for getting a Rebuilt title. The process might include these steps:

    1. A certified rebuilder repairs the car.
    2. You, the owner, fill out paperwork for the car’s registration, certified labor and parts and inspection request.
    3. You bring the paperwork along with photos of the damaged car and the Salvage title to an approved inspection site. Your car would need to be towed there since you can’t drive it with a Salvage title.
    4. You pay the inspection fee for you car to pass the safety inspection.
    5. If approved, you may get notice by mail or at the inspection site.

    How can I get insurance for a salvaged car?

    If you manage to repair your car and get a Rebuilt title, you’ll need car insurance to drive legally. However, insurance companies may make you jump through a few hoops first. You can expect:

    • An inspection. If you find a company willing to insure your car, it might require an inspection from a mechanic to verify your car’s safety and structure. Your insurance company might want an appraisal of the car’s value.
    • Rebuilt title and registration. Next, your insurer will probably need proof of your car’s legal, roadworthy status.
    • Liability only. Some insurance companies may only provide basic medical liability coverage. This avoids the risk of paying a claim for your car if it gets damaged in an accident.
    • Agreed value. If the insurer agrees to offer physical damage protection, it might negotiate a set maximum amount to pay if your car gets totaled again.

    Types of car insurance coverage

    Bottom line

    If your insurance company writes your car off, you can prevent a total write-off, challenge the decision or negotiate your settlement cheque.

    In the end, if you’re not happy with the result, compare other car insurance providers to find one with better claims service for the future.

    Frequently asked questions about write-offs

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