CAADE Total Loss and Valuation 3 — Questions and Answers
Question 1: Which factor does NOT typically affect a vehicle's salvage value?
- Extent and location of damage
- Availability of parts demand for that model
- The color of the vehicle's exterior (Correct answer)
- Current scrap metal prices
Correct answer: The color of the vehicle's exterior
Salvage value is primarily driven by parts demand, damage severity, and scrap metal market prices; exterior color has negligible impact.
Question 2: A state's 'total loss formula' (TLF) law requires that a vehicle be declared a total loss when:
- Any safety system is damaged beyond repair
- Repair costs alone exceed a specified percentage of ACV, regardless of salvage value (Correct answer)
- The vehicle requires frame straightening
- The airbags have deployed during the accident
Correct answer: Repair costs alone exceed a specified percentage of ACV, regardless of salvage value
States with TLF laws set a fixed percentage threshold (commonly 75-80% of ACV) at which repair costs alone trigger a total loss declaration.
Question 3: When a total loss vehicle has a loan or lease balance that exceeds the ACV settlement, the gap is typically covered by:
- The at-fault driver's liability insurance automatically
- GAP insurance or a GAP waiver product (Correct answer)
- The standard comprehensive/collision policy
- State-mandated minimum coverage requirements
Correct answer: GAP insurance or a GAP waiver product
GAP (Guaranteed Asset Protection) insurance covers the difference between the vehicle's ACV and the outstanding loan or lease balance.
Question 4: In appraising a total loss vehicle, 'comparable vehicles' used for market comparison should primarily be:
- Vehicles sold nationwide over the past 12 months
- Vehicles available in the same or similar geographic market within a recent timeframe (Correct answer)
- Vehicles listed at the highest asking prices available
- New vehicles of the same make and model from franchised dealers
Correct answer: Vehicles available in the same or similar geographic market within a recent timeframe
Comparable vehicles should be from the same geographic market and recent timeframe to reflect actual local market conditions accurately.
Question 5: Which of the following would most likely INCREASE a vehicle's ACV compared to a base guidebook value?
- High mileage well above the average for its age
- Recent replacement of tires, battery, and brakes in excellent condition (Correct answer)
- History of multiple prior insurance claims
- Evidence of previous unrepaired hail damage
Correct answer: Recent replacement of tires, battery, and brakes in excellent condition
Recent maintenance items like new tires, battery, and brakes add demonstrated value and support upward ACV adjustments.
Question 6: The 'cost to cure' approach in total loss appraisal refers to:
- The insurer's cost to acquire a replacement vehicle for the insured
- Estimating what repairs would cost to restore the vehicle to pre-loss condition (Correct answer)
- The administrative cost of processing a total loss claim
- The cost of obtaining a salvage title for the vehicle
Correct answer: Estimating what repairs would cost to restore the vehicle to pre-loss condition
The cost to cure is a repair-cost estimate that, when compared to ACV and salvage, helps determine whether a total loss declaration is warranted.
Question 7: Under a 'stated value' policy, the insurer typically pays:
- The full stated value regardless of ACV at time of loss
- The lesser of the stated value or the ACV at time of loss (Correct answer)
- The replacement cost of a comparable new vehicle
- The original purchase price minus standard depreciation tables
Correct answer: The lesser of the stated value or the ACV at time of loss
Stated value policies pay the lesser of the stated amount or the actual cash value, unlike agreed value policies which pay the full stated amount.
CAADE Total Loss and Valuation 3
Which factor does NOT typically affect a vehicle's salvage value?