- Calculating total loss
- Calculating total loss when you return the car
- Calculating total loss when you trade in the car
- Calculating total loss when you sell the car
You purchase a car and drive it for a year, fulfilling your insurance contract for the duration of the year. At the end of the year, you return the car to the dealership and you’ve just realized you won’t be driving anymore. What’s the best way to calculate your total loss?
Calculating total loss
Total loss is calculated in terms of the net present value of insurance payouts to be made if the car is crushed. We’ll assume for simplicity that you don’t know the car’s future value at the time of loss.
Assume that your car is a 2002 Toyota Corolla. Your car cost $11,500, and you received $18,000 in insurance payouts in the first year of your insurance contract. The total value of insurance payouts for the year was $18,000. Calculate the amount of net present value for that amount of money. That is $18,000 divided by $11,500 = $0.087. In the end of the year, the value of the car was zero. The total loss is therefore $0.087.
Calculating total loss when you return the car
A total loss is the market value of a car in the hands of a legitimate insurer when the warranty ends. The more you are insured against for your car, the more that price can be used to estimate your total loss.
Calculating total loss when you trade in the car
Your insurance will handle the financing of your new vehicle and it will pay the sales tax on the amount it purchases. The total amount of the deal will be the amount of your insurance policy amount. So it’s a complete loss to the dealership for the reason that it will receive less money when the deal is closed. You could take a different approach though, if you simply want to get a new car.
You could simply pay the difference. How to calculate total loss when you buy a car When you buy a used car, you’ll have to pay the title tax as well. The title tax is meant to make it easier for the new owner to sell the vehicle without going through the bother of having to report it to the authorities. But that title tax isn’t your insurance company’s responsibility.
Calculating total loss when you sell the car
You are still going to drive for a few more months as your insurance payment has not yet kicked in. It may take a few months before you find a job and will be able to afford a car again. Also, you’re stuck in the whole lease deal and you’re only making around $50/week. You’ll need some cash, so you decide to sell the car on eBay, Craigslist, or some other online forum.
You might need to take a loss on the car, but you have to consider two things: How much would your payments have been?
How much would your insurance cost have been? So, let’s say that your total payments over a 12 month period were $500. After 12 months, if you’ve paid more than $500, you would owe an additional $500 when you return the car. (For simplicity’s sake, I’ve simplified this example).