Total loss on a vehicle — what it means and how it is calculated
When the repair costs more than the car is worth, the insurer declares a total loss. Here is what that means for the payout, and what happens if you are on a lease.
What a total loss is
We speak of a total (economic) loss when the estimated cost of repair exceeds the value of the vehicle (or crosses the threshold the insurer applies). Repairing it no longer makes economic sense, so money is paid out instead.
How the payout is calculated
The insurer pays out the market value of the vehicle at the time of the accident, less the residual (salvage) value. So: market value − salvage value = payout (less any excess under the policy).
Can you keep the salvage?
Usually yes — if you keep the salvage, its value is deducted from the payout. If you hand it over to the insurer, you receive the full market value.
What happens if you are on a lease
On a lease the vehicle belongs to the leasing company, so the payout first settles the outstanding debt under the contract. If the debt is greater than the payout, the difference is covered by GAP insurance — if you have it. Without GAP you would have to pay the difference yourself.
Paperwork
After the payout the vehicle is deregistered; the insurer and the leasing company take you through the necessary steps (transfer, deregistration, documentation).
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Who decides whether a loss is total?
The insurer's assessor, on the basis of the estimated cost of repair and the value of the vehicle.
Can I keep the salvage?
Usually yes — in that case the value of the salvage is deducted from the payout.
What if the payout is less than the leasing debt?
The difference is covered by GAP insurance if you have it; without it, you pay it yourself.
Is the new value of the vehicle paid out?
No, the market value at the time of the accident is paid out, less the salvage.
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Note: this guide is general information, not legal or insurance advice. For your own case, speak to your insurer.