Washington State Insurance Practice Exam

When is a vehicle considered a total loss in auto insurance?

1. When it is stolen

2. When the repair costs exceed its value

3. When the owner decides to sell it

4. When it receives significant damage but is repairable

The correct answer is: When the repair costs exceed its value

A vehicle is classified as a total loss in auto insurance when the repair costs exceed its actual cash value, which is generally determined by the vehicle's age, condition, and market value prior to the accident. This assessment is critical because insurance companies often base their decision to declare a vehicle a total loss on whether it is economically feasible to repair it. When the combined costs to repair the car and the associated expenses surpass its value, it is financially impractical for the insurance company to proceed with repairs. Therefore, in such cases, the insurer typically opts to declare the vehicle a total loss and compensates the policyholder accordingly. This option aligns with the principle of indemnity in insurance, aiming to restore the policyholder to their financial position prior to the loss without resulting in profit. The other options highlight scenarios that do not meet the criteria for a total loss. Theft does not equate to a total loss regarding repair costs, selling the car does not change its status immediately after an accident, and significant damage may still allow for repairs to be feasible.