What is the car insurance write-off procedure?

Getting into a serious accident is every driver's worst fear. Dealing with insurance claims and repairs can be a hassle, but if the accident is severe, you might hear your car insurance company refer to your totalled car as a "write-off." But what exactly does that mean, and how do you know if your car is one? Let's find out.

Understanding car write-offs

A car "write-off" is what the insurance industry calls a total loss. Basically, it means the cost to fix your car after an accident is higher than what the car is worth, even after factoring in its salvage value. In these situations, your insurance company will offer you a settlement payout based on the details of your policy.

How does an insurance company determine if it's a write-off or repair?

When your car is seriously damaged, insurance appraisers will evaluate its value before the accident to establish what’s called the actual cash value (ACV). This is based on things like:

• The make, model, trim, and year of the vehicle
• The estimated pre-accident condition of the interior and other parts of the car
• The car's mileage
• Any extra features or custom equipment.
• The current market value for similar vehicles currently on the market

Once they’ve calculated the actual cash value, they’ll assess the damage and repair costs. Your car will likely be declared a write-off if it meets one of these conditions:

• The repair costs are higher than the car’s value (50% or more)
• It has structural damage that can’t be repaired
• The airbags have deployed (since this adds thousands to the repair costs and often signals significant damage)

Here's how companies determine whether a car is a write-off or eligible for repair:

Write-off value calculation

Most insurance providers use a similar method to figure out if your car is a write-off. It’s based on the repair costs and the value of your vehicle. Think of it this way:

• Actual cash value (ACV) – repair costs + salvage value = repair/write off

If the ACV is greater than the repair costs plus the salvage value, they may repair your vehicle. If the ACV is less than the repair costs plus the salvage value of your vehicle, they'll likely write it off. In most cases, your insurer will go with whichever amount is lower—either the cost of repairs or the actual cash value of the car.

Sometimes, even if repairs are less than the car’s value, it might still be considered a write-off. This can happen due to factors like rising costs of parts, difficulties in sourcing parts for older cars, or inflation. If your damaged vehicle is declared a write-off, the insurance company will pay you a cash settlement of the pre-accident value of your vehicle, minus your deductible, and they’ll keep the salvage. However, if your car is less than two years old and your policy includes a limited waiver of depreciation, your insurer will reimburse you the full amount you originally paid for the car.

On the other hand, if your insurer agrees to cover the repairs, they’ll typically work with their preferred auto shops. You can choose a different shop, but keep in mind that your insurer will only guarantee the work if it’s done at one of their recommended places. If you decide to go elsewhere, make sure to get a written estimated repair cost that includes parts and labour, and share it with your insurance company to ensure it’s within the amount they’re willing to cover.

What is actual cash value vs. replacement cost?

Actual cash value (ACV) and replacement cost are two different ways insurance companies value items. ACV is the amount it would take to repair or replace an item minus depreciation. Replacement cost, on the other hand, covers the full cost of replacing an item with a brand-new one.

With replacement cost insurance, you don’t lose out on money when you need to replace something, even if its value has decreased over time. However, if your policy covers items at their actual cash value, which factors in depreciation based on age and condition, you may have to pay the difference between the insurance payout and the actual cost to replace the item.

Can I keep my car after the insurance write-off?

Yes, in most cases, you can keep your car after it's been deemed a write-off. You can negotiate with the insurance company to hold onto it, even if it’s totalled. If you decide to go this route, your payout will be the actual cash value of your car minus your deductible and the amount the car would have been sold for as salvage.

Can I challenge the written-off car decision?

A lot of drivers don’t realize that they can—and should—negotiate a total loss settlement with their insurance company. Insurance companies are for-profit businesses, so they’ll try to minimize their losses—but you have the right to challenge their decisions if you don’t agree with the assessment. In fact, most insurers have arbitration processes you can go through for the dispute. Just be sure not to sign any documents or accept any money if you disagree with the valuation.

If you do want to dispute their decision, it's best to start by learning everything you can about their total claims process and how they came to their decision and settlement offer. You can also do your own research by looking up what the actual cash value of your vehicle is in your market area and comparing it to their offer. Further, don't be afraid to ask an insurance advisor for advice. They can even negotiate on your behalf with your insurance company.

Once you've done all this, talk to your insurance representative and present a counteroffer to try and reach a settlement amount you both agree on. Don't be surprised if you have to go back and forth a few times.

What car insurance coverage covers a write-off?

If you're new to the world of car insurance, you may not be aware that basic car insurance (also known as liability only) won't cover a damaged vehicle if you're involved in an at-fault accident. In fact, basic car insurance only covers third-party liability damage. This means your car insurance coverage only covers damage done to the other person's vehicle, not your own. Insurance coverage for a write-off includes:

Collision coverage

Now, if you're involved in a collision and the fault is determined to be the other driver, their insurance will pay for your vehicle's repairs or replacement. However, if you're involved in an at-fault collision, either with another vehicle or a stationary object, you'll need collision coverage in order for your insurance provider to cover the cost of repairs or replacing your vehicle.

Comprehensive coverage

And if your vehicle receives other types of damage, like fire, weather damage, vandalism, theft, or a collision with a large animal, you'll need comprehensive coverage to cover those expenses. Without these types of auto insurance, you'd be on the line to pay for the repairs or replacement of your vehicle yourself.

Replacement car insurance

Replacement car insurance, also known as gap insurance, kicks in when your vehicle is badly damaged in a collision, and the insurance company declares it a write-off, meaning the repair costs are higher than the car’s value. At that point, the insurance company will give you a payout to help cover the cost of replacing the car. This coverage is often offered by car dealerships or lenders to drivers who lease or finance their vehicles. Instead of being part of your regular auto insurance policy, it’s typically added to your lease or payment plan.

Make sure your car is protected in an accident with BrokerLink

If you want to know more about how insurance companies decide when a car is written off or what your options are after it happens, reach out to BrokerLink. We’re experts in the insurance industry and can guide you through the whole process.

We can also provide helpful advice on filing a total loss claim and what to do when the insurance company offers a settlement. Plus, as a full-service car insurance brokerage, we can help you review your coverage to ensure you're properly protected before you ever face this situation.

You can reach us by phone, email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.

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