What constitutes a "total loss" in an insurance claim?

A "total loss" in an insurance context occurs when the cost to repair a damaged vehicle exceeds its actual cash value (ACV). The ACV is defined as the market value of the vehicle just before the loss occurred. This means that if the expenses involved in repairing the vehicle surpass the amount the vehicle is worth, it is deemed economically impractical to perform the repairs. In such circumstances, the insurance company typically opts to settle the claim by offering the policyholder an amount equivalent to the vehicle's ACV, rather than investing in costly repairs that would not restore the vehicle's value to its pre-accident state.

In contrast, if a vehicle is stolen and not recovered, that situation may lead to a total loss as well, but it is not primarily determined by repair costs. Also, if a vehicle can be repaired at a low cost, it does not constitute a total loss since the required repairs are not prohibitively expensive. Lastly, simply deciding to sell the vehicle does not impact whether it's classified as a total loss; a total loss designation is fundamentally based on repair costs compared to the vehicle's value.