Total Loss Valuation Flashcards
7 cards from real CAIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Total Loss Valuation flashcards as text
What is the significance of the 'total loss threshold' (TLT) in states that use it?
Answer: It is the statutory percentage of ACV at which a vehicle must be declared a total loss
States with a total loss threshold law require insurers to declare a vehicle a total loss when repair costs reach or exceed that percentage of ACV, removing adjuster discretion.
A vehicle is worth $20,000 ACV and repairs are estimated at $16,500. The state has an 80% total loss threshold. How should the adjuster handle this claim?
Answer: Declare a total loss; repair costs equal 82.5% of ACV
$16,500 ÷ $20,000 = 82.5%, which exceeds the 80% statutory threshold, so the vehicle must be declared a total loss.
Which of the following best describes the 'seven-corner' or 'inherent diminished value' formula sometimes referenced in total loss contexts?
Answer: A formula sometimes used to estimate diminished value on repaired vehicles, not a total loss metric
The 17c formula (often called 'State Farm formula') estimates diminished value on repaired vehicles and is irrelevant to pure total loss valuation.
An insured's vehicle has custom paint (estimated cost $4,000) that does not increase market resale value. How should an adjuster treat this?
Answer: Do not add it to ACV because the market does not reflect the cost
ACV is based on market value, not the owner's investment; if the custom paint does not increase what buyers would pay, it does not increase ACV.
When a total loss vehicle is sold at a salvage auction, who typically retains the salvage sale proceeds?
Answer: The insurer, which uses the proceeds to offset claim costs
After paying ACV to the insured (and lienholder), the insurer takes title to the salvage and retains auction proceeds to offset its total loss payment.
What is a 'certificate of destruction' and when is it issued for a total loss vehicle?
Answer: A state-issued title brand for vehicles too severely damaged to be returned to road use
A certificate of destruction is issued by the state DMV for vehicles so severely damaged that they cannot legally be rebuilt or titled for road use.
How does high local demand for a particular vehicle model affect its ACV in a total loss settlement?
Answer: It can increase ACV because strong local demand raises comparable sale prices
ACV reflects the local market, so strong regional demand for a specific model can push comparable sale prices—and therefore ACV—above national averages.