What Does it Mean When a Car is a Write-off?

Finding out that your car has been written off can be overwhelming. Whether it’s the aftermath of an accident, severe weather, or other unforeseen event, the term “write-off” often leaves car owners with more questions than answers. What exactly does it mean when your vehicle is declared a write-off? How do insurers decide whether to write off a car? And perhaps most importantly, what happens next? In this blog, we’ll break down the process of a write-off, explain how insurers determine if your car qualifies, and guide you through the impact it may have on your insurance. Keep reading to learn more.

Please Note: This blog provides a general overview of auto insurance. It is not all-encompassing and should not be taken as specific advice. Be sure to discuss your unique circumstances with a licenced insurance broker to receive guidance tailored to your situation.

What is a Write-Off?

A car is classified as a write-off when it is declared by the auto insurance provider to be a total loss. This means the cost to repair the vehicle plus its salvage value is greater than its actual cash value (ACV). It can also occur if the vehicle is deemed unsafe to drive following an accident or damage. Write-offs can occur after:

• Accidents: A significant collision or crash where the car sustains major damage.
• Flood or Fire: Damage caused by extreme weather events or a fire affecting the vehicle’s structure.
• Theft or Vandalism: If a car is stolen and not recovered or is too damaged due to vandalism.

Once a car is written off, the insurer will provide a cash settlement that is equal to the ACV before the incident minus your deductible. These funds can then be used to purchase a replacement vehicle. 

It’s important to note that in order to receive a settlement from your insurer following a total loss, your policy must contain the correct coverage. Depending on the circumstances, the following coverages can help ensure you receive payment if your car is written off: 

• Collision Coverage
• Comprehensive Coverage
• All Perils
• Specified Perils
• Direct Compensation Property Damage

How do Insurers Determine if a Car is a Write-Off?

Insurance companies have specific processes and criteria to determine whether a car should be written off. Here are some of the main factors they consider to declare it a total loss vehicle:

Repair Costs vs. Market Value

This is the most straightforward approach insurers use. If the repair costs, combined with the salvage value, exceed a certain percentage of the vehicle’s pre-accident ACV, the car will typically be written off. The threshold varies by insurer but often falls anywhere between 50% to 80% of the vehicle’s value.

For example, if a car is worth $10,000, but the repair costs ($7,500) and the salvage value ($3,000) combine for a total of $10,500, the insurance provider would likely declare it a write-off and pay you out instead of approving the repairs.

How is the Actual Cash Value of a Car Determined?

To determine the ACV and whether your car is a total loss, insurers consider the following:

 

• The year, make, and model of your vehicle.
• The total kilometres your car has been driven.
• The condition of your car before the incident, including previous damage.
• Any upgrades or customizations made to your car.
• The price of similar vehicles being sold in your area. 

By analyzing these factors, insurers determine a fair payout that reflects what your car was worth before the incident.

The Extent of Damage and Safety Concerns

Insurers will also closely examine the extent of the damage, particularly critical components like the engine, transmission, or frame, as these are expensive to repair or replace. If the damage compromises the vehicle’s safety - such as bent frames or weakened structural components - the car may be deemed unsafe to repair. In such cases, insurers prioritize safety and may write off the vehicle to avoid any risk of it not meeting safety standards after repairs.

What Happens if Your Car is Written Off?

If your car is a total loss or declared a write-off, here’s what you can expect:

Payout from the Insurance Company

Once the vehicle is declared a write-off, the insurer will provide a settlement based on the car's market value before the incident. The payout is also reduced by the policy’s deductible, if applicable.

For example, if you purchased your car for $15,000, but the market value at the time of the incident is $12,000, you will receive a payment of $12,000 minus your deductible (for instance, $1,000). So, you would receive $11,000. You could then use these funds to purchase a new vehicle.

If you bought your car brand-new, adding a depreciation waiver to your policy can offer protection against depreciation. This coverage ensures that if your car is written off within a certain timeframe, you receive a payout that reflects the original purchase price rather than the depreciated value.

Handling an Outstanding Loan or Lease

If you have an outstanding loan or lease on the vehicle, the payout from the insurance company may not cover the full amount owed. In this case, you'll need to cover the difference unless you have a gap insurance policy. Gap insurance covers the difference between what your insurance pays out and what you owe on your loan or lease.

Salvage and Disposal of a Totalled Car

Once the insurer determines your vehicle is a write-off, the car is typically either kept by the insurer or sold to a salvage company. If it’s kept by the insurer, they might sell it as scrap, or it may be auctioned off for parts. The vehicle may be sold as a "salvage" or "rebuilt" title if repairs are done and it passes inspection.

Alternatives to a Write-Off: Repairing vs. Replacing

Sometimes, repair may still be a viable option. If you believe that your car’s damage is more cosmetic or do not agree with your insurer’s assessment, you may be able to negotiate for repairs instead of a write-off. This can be particularly useful if your vehicle has sentimental value. However, depending on the extent of the damage, repairs might not be a reasonable option, and sometimes, it may be better to accept the write-off and start fresh with a new vehicle.

Will a Write-Off Impact Your Insurance?

Depending on the situation, having a vehicle written off can affect your future car insurance rates. If your car was written off due to an accident where you were at fault, your premiums might rise when it’s time to renew your policy. Insurers may consider you a higher risk because of the claim, especially if the accident was severe or you had prior claims. However, if the write-off was due to an event beyond your control (i.e. another driver being at fault, theft, or a weather-related incident), your premiums may not be impacted as much or at all.

Insuring Rebuilt and Salvaged Vehicles

If you are considering buying a vehicle that was previously written off and repaired, this can impact your auto insurance as well. Insurers may treat rebuilt cars differently, often at a higher premium or with policy limitations. Rebuilt cars are generally considered a higher risk to insure, so it is recommended you speak with a BIG insurance broker to understand how this could affect your coverage.

Can I Prevent My Car From Being Written Off?

While accidents and unforeseen events can happen at any time, there are a few steps you can take to minimize the risk and damage to your car:

• Maintain Your Car Properly: Regular servicing and maintenance can prevent issues that might lead to major damage in an accident.
• Drive Safely: Avoiding risky driving behaviours, such as speeding or distracted driving, can reduce the likelihood of accidents.
• Park in a Secure Location: Parking in a garage, well-lit area, or monitored parking lot can help reduce the risk of theft, vandalism, or weather-related damage.

Speak to a BIG Broker to Learn More

Having your car written off can be a stressful experience, but understanding the process can help you navigate it with confidence. While every situation is unique, our team can provide personalized advice to ensure you get the coverage and support you need. Contact a BIG broker today to learn more and find the best protection for your vehicle.