CAIA Total Loss Valuation 2 — Questions and Answers
Question 1: A vehicle is declared a total loss when repair costs exceed what percentage of the actual cash value (ACV) in most US states?
- 50%
- 70%
- 80% (Correct answer)
- 100%
Correct answer: 80%
Most states use a threshold of 75–80% of ACV, with 80% being the most common statutory total-loss threshold.
Question 2: Which valuation method uses recent sale prices of comparable vehicles in the same geographic market to determine ACV?
- Book value method
- Comparable sales method (Correct answer)
- Replacement cost method
- Depreciated cost method
Correct answer: Comparable sales method
The comparable sales method establishes ACV by analyzing actual transaction prices of similar vehicles sold locally.
Question 3: When adjusting a comparable vehicle's value, which factor would INCREASE the subject vehicle's ACV?
- The comparable has lower mileage than the subject (Correct answer)
- The comparable has a sunroof the subject lacks
- The comparable has newer tires than the subject
- The comparable has a clean title while subject has a prior salvage title
Correct answer: The comparable has lower mileage than the subject
If the comparable has lower mileage, it is worth more; therefore the subject's ACV is adjusted downward from the comparable's price — but relative to the comparable, lower mileage on the comp means the subject is worse, reducing ACV.
Question 4: What is a 'salvage value' in the context of total loss settlement?
- The cost to repair the vehicle to pre-loss condition
- The amount the insurer receives by selling the wrecked vehicle (Correct answer)
- The depreciation applied to the vehicle's ACV
- The owner's deductible applied at settlement
Correct answer: The amount the insurer receives by selling the wrecked vehicle
Salvage value is the proceeds the insurer obtains from selling the totaled vehicle to a salvage buyer or auction.
Question 5: An insured retains their totaled vehicle for parts. How does this typically affect the settlement?
- The insurer pays full ACV with no deduction
- The insurer deducts the salvage value from the ACV settlement (Correct answer)
- The insurer adds a storage fee to the settlement
- The insurer voids the claim due to retained salvage
Correct answer: The insurer deducts the salvage value from the ACV settlement
When an insured retains the salvage, the insurer deducts the salvage value from the ACV payment because the insurer no longer receives those proceeds.
Question 6: Which of the following best defines 'actual cash value' (ACV) under the broad evidence rule?
- The cost to replace the vehicle with a new equivalent model
- The price paid for the vehicle when originally purchased
- Fair market value considering all relevant evidence of value (Correct answer)
- The NADA retail value minus the deductible
Correct answer: Fair market value considering all relevant evidence of value
The broad evidence rule allows adjusters to consider all relevant evidence—market data, condition, mileage, local demand—to determine ACV.
Question 7: A vehicle has $12,000 in repair costs and an ACV of $14,000. The salvage value is $3,000. What is the net cost to the insurer if it declares a total loss?
- $14,000
- $11,000 (Correct answer)
- $12,000
- $9,000
Correct answer: $11,000
Net cost = ACV minus salvage value = $14,000 − $3,000 = $11,000, which is less than the $12,000 repair cost, making total loss the economical choice.
CAIA Total Loss Valuation 2
A vehicle is declared a total loss when repair costs exceed what percentage of the actual cash value (ACV) in most US states?