The decision is economic. Texas's Office of Public Insurance Counsel puts it plainly: a total loss "means that your vehicle costs more to fix than to replace," and in making that comparison insurers often count costs such as a rental car during the repair and subtract what they would receive by selling the wreck as salvage. Thresholds and formulas differ by insurer and by state, so two cars with the same damage can be handled differently in different places.
What the owner is paid. On a vehicle the settlement is normally built on actual cash value, meaning what the car was worth immediately before the loss, less the deductible on the collision or comprehensive coverage that applies. It is not what the owner paid and not the price of a replacement today. Whether the payment also covers sales tax and fees is a matter of the policy and of state law: Washington, for example, requires insurers to include "all applicable government taxes and fees that would have been incurred by the claimant if the claimant had purchased the loss vehicle immediately prior to the loss." The owner can dispute the valuation with evidence about comparable vehicles, ask for a claims supervisor, use any valuation dispute procedure the policy provides, and complain to the state insurance department.
The loan comes first. If the car is financed, the lender is named on the policy and is paid first. Because a car can lose value faster than its loan is paid down, the settlement can be smaller than the balance, and the borrower still owes the difference on a car that no longer exists. That shortfall is what GAP coverage exists to pay, measured, as the NAIC glossary puts it, as "the excess of the outstanding indebtedness over the primary property insurance benefits in the event of a total loss to a collateral asset."
The title is branded. In Florida a vehicle that is a total loss is "salvage," and the title has to be sent to the state, which issues a salvage certificate of title or a certificate of destruction. An owner may be able to keep the vehicle as part of the settlement, an arrangement Texas's consumer office calls owner retained salvage, in which "the company deducts the amount they would get for selling the car as salvage from your claim payment." Florida then issues the salvage certificate of title or certificate of destruction directly to the owner. A vehicle that is later repaired carries that history, which lowers its resale value.
Homes and other property. A house destroyed by a covered cause is also a total loss. What the owner receives depends on the policy (actual cash value or replacement cost) and, in some states, on a valued policy law, which the NAIC describes as legislation under which "the insured shall receive the face amount of the policy in the event of a total loss to a dwelling rather than the actual cash value."
