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While no one wants to think about their vehicle being written off after an accident, it’s good to know how the process works if it does.

The Insurance Bureau of Canada (IBC) explains it this way: If the estimated repair cost plus the salvage value of the damaged vehicle exceeds the cash value of the vehicle before it was damaged, your insurer may decide to treat the vehicle as a write-off instead of paying to repair it.

If your insurer confirms your vehicle is a write-off, you will receive a cash settlement based on the fair market value of your vehicle before it was damaged.

According to Canadian Underwriter, about 17 per cent of physical damage claims result in a vehicle being deemed totaled by insurers.

Factors such as market value, mileage, repair costs, salvage, safety and financial considerations for damage estimates and repair times all play a role. Insurers also make use of a car valuation database known as the Canadian Automobile Red Book in their determinations.

Today’s vehicles also have a lot more technology - complex sensors, expensive electronics that require time and specialized tools to calibrate as part of the repair process. In other words, if your vehicle is too expensive to repair and recalibrate compared to its current market value, it might be a write-off, even if the physical damage doesn’t look extreme.

How is my vehicle assessed?

Once you file your claim after the accident, a claims adjuster will assess the damage. If it meets one of the following criteria it is likely to be declared a write off:

• Repairs that exceed the vehicle’s value
• Structural damage that can’t be fixed
• Deployed air bags. (These add several thousand dollars to the overall repair costs and is usually a sign of significant physical or structural damage.)

IBC says if your insurer will pay to repair the vehicle, they will manage it with their preferred repair shop. While you are free to go elsewhere, your insurer will only guarantee the work if done at one of their preferred auto shops. If you go to another place, you should get a written estimate with parts and labour and share it with your insurance company so you know if it’s within the amount they are willing to pay.

If repairs make the vehicle better – You may be expected to contribute. For example, think of a rusted door panel that is dented in a collision. You are able to have additional work done that is not related to the accident, but it would be at your own expense.

If it’s a write-off: The insurer will pay you the pre-collision value of the vehicle, minus the deductible and keep the salvage.

Of note, if your vehicle is less than two years old and your policy includes a limited waiver of depreciation clause, your insurer will reimburse for the full value you paid for it.

How do I get paid for a total loss vehicle?

That depends on your vehicle’s purchasing or leasing arrangement.

Owned - You will receive a cheque for the actual cash value of the car, minus your deductible.

Leased - If your vehicle has been totalled, contact your lienholder. In most cases, you will receive a cheque from your leasing company for the current market value. But if your lease amount is more than the settlement cheque, you have to pay the remaining balance.

Financed – Because the length of car loans has increased it may result in the market value of the vehicle being less than what is still owed to the financing company. In this case, you will be required to pay the balance owing on the car loan.

Most insurance companies offer gap insurance coverage that can be purchased as an option. In the above scenarios, gap insurance would the difference between your payout and the remaining balance on your loan or lease. You can consult with your broker to decide if gap insurance would be beneficial, but it has to be purchased when you arrange for the policy.

Can You Negotiate With Your Insurance Company?

Yes. Many drivers are not aware they can negotiate a total loss settlement with their provider. Here are some tips:

Understand the claims process: Know how your insurer arrived at a settlement number.

Don’t accept the first offer: You do not have to immediately accept the first cash settlement amount offered.

Do some homework: Research what the actual cash value of your vehicle is in your market. Consult local dealerships, check out auto TRADER, Kijiji, and automobile valuation tools such as Kelley Blue Book Canada.

Speak with your claims representative: Armed with your research, provide your insurance representative with a counteroffer.

What if I disagree with the insurance company’s settlement?

If negotiations with your adjuster go unresolved and you are not happy with your cash settlement, you have the right to seek arbitration. Consult the Financial Services Regulatory Authority of Ontario (FSRA).