Insurance companies don't randomly classify a car as a total loss after an accident. Before offering to replace your car or give you a cash settlement, they first use one of two formulas to **calculate the damage ratio or total loss threshold**, and then compare the results to state and company guidelines. A totaled car is one that meets or exceeds the numbers specified in those guidelines.

## Total Loss Criteria

The three main criteria for determining whether your car is repairable or is a total loss are

- repair costs
- selling price at a salvage yard
- cash value

### Tip

**Cash value refers to how much your car was worth prior to the accident.** An insurance adjuster determines the amount by comparing your car to similar cars in your area, or by using auto-value guides such as Kelly Blue Book or NADA guides.

## Damage Ratio vs. Total Loss Threshold Formulas

The specific criteria and formula an insurance company uses generally depends on whether state laws specify how much damage a car must sustain before classifying it as a total loss.

**Insurers calculate the damage ratio in states that specify a specific percentage**. The formula is "**cost of repairs/cash value**." For example, if repair costs are $4,000 and the cash value is $8,000, the damage ratio is 50 percent. Comparing the result to the state-specified percentage determines whether the car is considered totaled. As of publication date, the cutoff ratio in most states is 75 percent.

**Insurers use the total loss formula in states that don't specify a percentage**. According to this formula, a car is considered totaled if repair costs plus salvage value are greater than the vehicle's cash value. For example, a car with a cash value of $4,000 will be classified as totaled if repair costs are $5,000 and a salvage yard will pay $1,000 for the vehicle.

### Tip

According to Gary Wickert, an insurance attorney, most insurers also consider practicalities in classifying a car as repairable or totaled. For example, a car approaching, but not exceeding, the damage guideline might be classified as totaled if repairing the vehicle doesn’t make sense.