CAIA Total Loss Valuation 5 — Questions and Answers
Question 1: What is the significance of the 'total loss threshold' (TLT) in states that use it?
- It sets the minimum deductible for comprehensive claims
- It is the statutory percentage of ACV at which a vehicle must be declared a total loss (Correct answer)
- It defines the maximum salvage value an insurer can accept
- It determines the minimum number of comparables required in a valuation report
Correct answer: It is the statutory percentage of ACV at which a vehicle must be declared a total loss
States with a total loss threshold law require insurers to declare a vehicle a total loss when repair costs reach or exceed that percentage of ACV, removing adjuster discretion.
Question 2: A vehicle is worth $20,000 ACV and repairs are estimated at $16,500. The state has an 80% total loss threshold. How should the adjuster handle this claim?
- Repair the vehicle; 80% threshold is not met
- Declare a total loss; repair costs equal 82.5% of ACV (Correct answer)
- Request a second repair estimate before deciding
- Apply the deductible and then compare to the threshold
Correct answer: Declare a total loss; repair costs equal 82.5% of ACV
$16,500 ÷ $20,000 = 82.5%, which exceeds the 80% statutory threshold, so the vehicle must be declared a total loss.
Question 3: Which of the following best describes the 'seven-corner' or 'inherent diminished value' formula sometimes referenced in total loss contexts?
- A standard method used by all state DOIs to calculate total loss ACV
- A formula sometimes used to estimate diminished value on repaired vehicles, not a total loss metric (Correct answer)
- The formula for calculating pro-rata return premium on a totaled vehicle
- A CCC One proprietary algorithm for setting salvage auction bids
Correct answer: A formula sometimes used to estimate diminished value on repaired vehicles, not a total loss metric
The 17c formula (often called 'State Farm formula') estimates diminished value on repaired vehicles and is irrelevant to pure total loss valuation.
Question 4: An insured's vehicle has custom paint (estimated cost $4,000) that does not increase market resale value. How should an adjuster treat this?
- Add full $4,000 to ACV since it was a legitimate expense
- Add $4,000 minus depreciation for time elapsed
- Do not add it to ACV because the market does not reflect the cost (Correct answer)
- Deduct $4,000 from ACV as a modification that hurts resale
Correct answer: Do not add it to ACV because the market does not reflect the cost
ACV is based on market value, not the owner's investment; if the custom paint does not increase what buyers would pay, it does not increase ACV.
Question 5: When a total loss vehicle is sold at a salvage auction, who typically retains the salvage sale proceeds?
- The insured, as compensation for their lost vehicle
- The repair shop that provided the estimate
- The insurer, which uses the proceeds to offset claim costs (Correct answer)
- The lienholder, to reduce the loan balance
Correct answer: The insurer, which uses the proceeds to offset claim costs
After paying ACV to the insured (and lienholder), the insurer takes title to the salvage and retains auction proceeds to offset its total loss payment.
Question 6: What is a 'certificate of destruction' and when is it issued for a total loss vehicle?
- A document issued by the repair shop certifying the vehicle is beyond repair
- A state-issued title brand for vehicles too severely damaged to be returned to road use (Correct answer)
- A release form signed by the insured waiving their right to dispute the settlement
- A document required by the insurer before paying any total loss claim
Correct answer: A state-issued title brand for vehicles too severely damaged to be returned to road use
A certificate of destruction is issued by the state DMV for vehicles so severely damaged that they cannot legally be rebuilt or titled for road use.
Question 7: How does high local demand for a particular vehicle model affect its ACV in a total loss settlement?
- It has no effect; ACV is based solely on national book values
- It can increase ACV because strong local demand raises comparable sale prices (Correct answer)
- It decreases ACV because popular vehicles depreciate faster
- It delays settlement until demand normalizes
Correct answer: It can increase ACV because strong local demand raises comparable sale prices
ACV reflects the local market, so strong regional demand for a specific model can push comparable sale prices—and therefore ACV—above national averages.
CAIA Total Loss Valuation 5
What is the significance of the 'total loss threshold' (TLT) in states that use it?