CAIA Total Loss Valuation 5

Question 1

What is the significance of the 'total loss threshold' (TLT) in states that use it?

Accepted Answer

It is the statutory percentage of ACV at which a vehicle must be declared a total loss

Answer

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?

Accepted Answer

Declare a total loss; repair costs equal 82.5% of ACV

Answer

$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?

Accepted Answer

A formula sometimes used to estimate diminished value on repaired vehicles, not a total loss metric

Answer

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?

Accepted Answer

Do not add it to ACV because the market does not reflect the cost

Answer

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?

Accepted Answer

The insurer, which uses the proceeds to offset claim costs

Answer

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.

(CAIA) Certified Automotive Insurance Adjuster Practice Test

(CAIA) Certified Automotive Insurance Adjuster Practice Test

CAIA Total Loss Valuation 5