CALA Total Loss Valuation 3 — Questions and Answers
Question 1: Under the total loss threshold (TLT) method, a vehicle is declared a total loss when:
- The repair cost equals or exceeds a fixed percentage of ACV set by state law or insurer policy (Correct answer)
- The vehicle is physically impossible to repair
- The owner requests a total loss settlement
- The repair takes more than 30 days
Correct answer: The repair cost equals or exceeds a fixed percentage of ACV set by state law or insurer policy
The TLT method declares a total loss when repair costs reach or exceed a defined percentage of ACV, which varies by state.
Question 2: A vehicle is declared a total loss. The owner wants to retain the salvage. How does this typically affect the settlement?
- The settlement is increased to cover the owner's storage costs
- The salvage value is deducted from the ACV settlement (Correct answer)
- No adjustment is made; the owner keeps both the full ACV and the vehicle
- The insurer requires the owner to sign a release waiving future claims
Correct answer: The salvage value is deducted from the ACV settlement
When an owner retains salvage, the insurer deducts the salvage value from the ACV payout, as the insurer no longer takes title to the wreck.
Question 3: Which entity commonly provides electronic databases of comparable vehicle listings used by adjusters to calculate ACV?
- The National Highway Traffic Safety Administration (NHTSA)
- CCC Intelligent Solutions, Mitchell, or Audatex (Correct answer)
- The Department of Motor Vehicles
- The Insurance Information Institute
Correct answer: CCC Intelligent Solutions, Mitchell, or Audatex
Third-party valuation platforms like CCC, Mitchell, and Audatex aggregate market listings and provide ACV reports used by adjusters.
Question 4: An adjuster is valuing a vehicle with aftermarket alloy wheels. How should legitimate aftermarket improvements generally be treated?
- Excluded entirely because aftermarket parts are not covered
- Added to ACV if they demonstrably increase market value (Correct answer)
- Depreciated at double the rate of OEM components
- Automatically included at full purchase price
Correct answer: Added to ACV if they demonstrably increase market value
Aftermarket improvements that enhance market value should be added to ACV to the extent they are reflected in what buyers would actually pay.
Question 5: What is 'diminished value' in the context of total loss claims?
- The difference between pre-loss ACV and post-repair ACV due to stigma (Correct answer)
- The depreciation applied to an old vehicle
- The salvage value of a totaled vehicle
- The deductible amount subtracted from the settlement
Correct answer: The difference between pre-loss ACV and post-repair ACV due to stigma
Diminished value is the reduction in market value a vehicle suffers because of its accident history, even after complete repairs.
Question 6: A total loss vehicle is subject to a $500 deductible. The ACV is $9,000 and salvage is valued at $1,500. The insured retains salvage. What is the net settlement?
- $9,000
- $7,000 (Correct answer)
- $8,500
- $7,500
Correct answer: $7,000
Settlement = ACV ($9,000) minus deductible ($500) minus salvage retained ($1,500) = $7,000.
Question 7: Why is the 'total loss formula' (repair cost + salvage value ≥ ACV) used in some states?
- To ensure repairs always proceed when cost-effective
- To determine total loss when combined costs make repair economically unsound (Correct answer)
- To calculate the insurer's subrogation rights
- To set salvage auction reserve prices
Correct answer: To determine total loss when combined costs make repair economically unsound
The total loss formula declares a vehicle a total loss when the sum of repair costs and salvage value meets or exceeds ACV, meaning repair is not economically justified.
CALA Total Loss Valuation 3
Under the total loss threshold (TLT) method, a vehicle is declared a total loss when: