You just got a notification from your insurance company that your car is a total loss. What does that mean? If you’re thinking, “How much will the insurance company pay me for my totaled car?” or wondering, “What is a total loss?” We have the answers.
Here’s what to expect when your car is declared a total loss.
When Does an Insurance Company Total a Car?
A car is totaled or a total loss when the cost of repairs is more than the vehicle’s actual cash value. Your car will be considered a total loss if the damage is extensive.
For owners of older vehicles, a total loss can be a surprise. Even with minor damage, the repair cost may be more than the car’s actual cash value (ACV), and the insurance company may determine it a total loss vehicle.
Sometimes, an insurance company will declare a car a total loss even if the repair cost is less than the car’s current market value, depending on state laws and the insurer’s loss threshold for repair cost vs. the car’s value.
What Happens When an Insurance Company Totals Your Car?
So your car is totaled. That means the car insurance company has decided that the vehicle’s repair cost is more than its value.
After an auto accident, a claims adjuster assesses the damage to determine whether the car is worth fixing. The insurance company then reviews the report and makes a final decision.
In many states, a car is considered a total loss if the repair estimate is more than a certain percentage of the vehicle’s actual cash value (ACV). This percentage varies but is often between 60% and 80%.
For example, if your car is worth $10,000 and the repair estimate is $7,500, the insurance company may decide the repairs are too costly compared to the car’s value and total it.
Not all total losses are from crashes. For instance, if a flood submerges your car and the electrical system is beyond repair, or a wildfire destroys your vehicle, your insurance company may total it.
In those cases, comprehensive coverage, not collision coverage, will pay your auto insurance claim. If you have the right coverage, your insurance company will pay you the pre-loss market value of the car minus your deductible.
How is a Total Loss Determined?
The way a vehicle is declared a total loss varies by state. Insurance companies use one of two methods:
- Fair Market Value Method
- Total Loss Formula (TLF)
Some states require the insurance company to use a specific method; others do not.
What is the Fair Market Value of Your Car?
A car’s fair market value (FMV) is its value just before an event, like an accident, flood, or natural disaster.
Some states require an insurance company to total a car when repair costs exceed a certain percentage of the FMV.
For example:
- Texas is 80% of FMV.
- New Jersey is 65% of FMV.
- Montana is 100% of FMV.
Suppose your car’s FMV is $12,000, and your state’s percentage is 70%. The insurance company will total the car if the repair estimate is over $8,400 (70% of $12,000).
How does the Total Loss Formula work?
In states that don’t have a percentage requirement, insurance carriers use the Total Loss Formula (TLF) instead.
This formula is the fair market value of the vehicle minus the salvage value, which is the amount they can sell the damaged vehicle to a salvage yard for.
For example, if your car’s FMV is $18,000 and a salvage yard offers $5,500 for the wrecked vehicle, the total loss threshold is:
$18,000 (FMV) – $5,500 (Salvage Value) = $12,500
In this scenario, the car is a total loss if the repair estimate is over $12,500.
How is the Value of My Totaled Car Determined?
When insurance totals your car, its actual cash value (ACV) is the amount the insurance provider will pay out in a claim. It’s determined by year, make, model, mileage, prior accidents, depreciation, and wear and tear of your vehicle. Insurance companies also use proprietary data to determine a car’s value during the claims process.
When a claims adjuster looks at your totaled car, they will compare it to the ACV to determine your payout.
However, you don’t have to take their first offer; you can research your car’s ACV using online tools to ensure the insurance company’s estimate is fair. If you think they undervalued your car you can negotiate for more money.
3 Steps For When Your Car Is Totaled
If your car is totaled, you, as a policyholder, have a few options for handling your insurance claim and getting driving again.
1. Accept the Insurance Payout
If you agree with your insurance company’s car value, you can accept their offer.
- If you still owe on your auto loan, the insurance payout will go to your lender to pay off the balance. If the payout doesn’t cover the entire balance, you will need to pay the difference unless you have gap insurance, which will cover the shortfall.
- If you own the car outright, you will receive a check for the car’s ACV minus your deductible.
Once the payout is settled, ownership of the car goes to the insurance company, which will sell it for salvage.
2. Dispute the Settlement
If your insurance company has undervalued your vehicle, you can dispute their estimate with their claims representative.
- Gather evidence such as recent maintenance records, low mileage documentation, aftermarket upgrades, and comparable car listings from dealerships or valuation sources like Kelley Blue Book or Edmunds.
- Present your information to your insurance company and negotiate a higher payout. If negotiations with the insurance adjuster don’t work out, you may be able to hire an expert independent appraiser or go through arbitration, depending on your auto policy.
3. Keep the Salvaged Vehicle
Some states allow you to keep your totaled vehicle if you want to. In that case, the insurance company will deduct the salvage value from your payout.
If you decide to keep your vehicle, you have a few options:
- Sell it to a junkyard – Junkyards buy totaled cars for parts and scrap metal, and many will arrange transportation.
- Trade it in—Some dealerships will take a trade-in even with a salvage title, but the trade-in value will be much lower than that of a comparable vehicle with a clean vehicle title.
- Repair and keep it—If the damage is cosmetic (e.g., severe hail damage or a dented hood), you might choose to have the vehicle repaired by a body shop. However, keep in mind that insuring a salvage-titled vehicle is more expensive, and some insurance companies may not insure it.
- Donate it to charity – Many charities accept vehicles even if they don’t run. If you donate your car, you may receive a tax deduction based on the charity’s resale or scrap value.
Regardless of your choice, you should know how your state handles salvage titles and whether the vehicle has to be inspected before it can be driven again.
Who Gets the Insurance Check When a Car is Totaled?
When a car is declared a total loss, a check is made out to whoever has an interest in it.
- You own the car outright, and there are no loans or leases. The check will be made out to you.
- There is an outstanding loan. The check will be sent to the lender (lienholder) to pay off the balance. You may get the difference if the check is more than the balance.
- The car is leased. The check will typically go to the leasing company since they own the vehicle. You may still be responsible for ongoing lease payments even if the car is no longer driveable.
If your car is financed or leased, you should notify your lender or leasing company as soon as possible of the total loss. After a total loss settlement, lenders typically require full payoff of the balance.
Leasing contracts remain in effect, so you may still be required to make monthly payments unless covered by insurance.
To avoid financial stress, consider these types of coverage:
- Loan/Lease Gap Coverage: This coverage helps pay the difference between what you owe and the insurance check if the vehicle is worth less than what you owe.
- New Car Replacement Coverage: If your car is 2 years old or less and you’re the original owner, this coverage may help replace your totaled car with a brand new replacement vehicle of the same make and model.
Having the right coverage in place can prevent financial headaches when a car is declared a total loss.
What Type of Insurance Covers a Totaled Car?
The type of insurance coverage that pays out for a totaled vehicle depends on the cause of the damage:
- Comprehensive coverage – Covers vehicles totaled by natural disasters or accidents where you weren’t at fault. Pays actual cash value (ACV) minus deductible.
- Collision coverage – Collision insurance pays the actual cash value after deductibles if you caused the accident.
- GAP Insurance – For lease or finance holders. Gap Insurance covers the remaining loan balance if the insurance payment doesn’t cover the debt you still owe on the loan.
- Property Damage Liability Coverage – If another driver is at fault, their liability insurance policy should cover the ACV of your totaled car.
- Uninsured/Underinsured Motorist Coverage - If the at-fault driver has no insurance or does not have enough insurance, this insurance policy covers the ACV of your totaled car when the responsible party can’t pay you in full.
Suppose you don’t have comprehensive or collision coverage. In that case, your insurance company won’t pay you for a totaled vehicle’s ACV, and you’ll have to absorb the loss. In that case, selling the car may be your best option.
If another driver is at-fault and insured their property damage liability coverage should pay you. Regardless of what type of additional coverage you have, a total loss means higher insurance rates.
How much does a total loss raise my car insurance rates?
A total loss can affect your car insurance rates and driving record. Insurance companies may raise your rates due to the risk of filing a total loss claim. Some insurers record these incidents, which can lead to higher rates in the future.
However, some insurance providers offer accident forgiveness policies that will not raise your rates after an at-fault accident. These policies are, however, subject to state regulations and the specific limits of your insurance company.
Once a vehicle is totaled, it’s no longer eligible for standard auto insurance. Handling total loss claims can be complicated and costly, which is why it’s important to have comprehensive or collision coverage to protect yourself from financial loss.
Understanding the process of filing a claim and managing the after-effects of a total loss.
What If My Car is a Total Loss but is Still Drivable?
If your car is totaled but still drives, depending on your state, you may be able to keep it.
If you decide to keep the car, your insurance company will pay you the vehicle’s value minus the salvage value. The salvage value is the selling price the insurance company would get if they sold the car to a salvage yard.
However, cars with total losses get a salvage or rebuilt title, making it harder to get insurance or sell the vehicle.
Can I Keep My Car if the Insurance Company Wants to Total It?
You can keep your car even after it’s been totaled in many states. If you do, the insurance company will reduce the cash settlement by the car’s value, and you can keep the vehicle. But keeping a totaled car can be a challenge.
First, you must get it repaired and insured to keep driving it. In some cases, like hail damage, you won’t need the cosmetic damage.
To be registered and insured, the car still has to meet roadworthy standards. You might have to deal with safety and legal issues when owning a salvage car. A salvage title is often issued for these cars, making getting insurance difficult.
You can also sell the car for salvage on your own or dismantle it for parts. While this could earn you more money than the insurance payout, it can also be a lot of work.
How to Fight an Insurance Company Over a Totaled Car Payout
Again, you want to find the value of your car before it is totaled. There are many online car guides like NADA and Kelley Blue Book. You can find an average price for your vehicle by comparing and contrasting car values. With that amount of money in mind, it would be easy to see if your car insurance company reimburses you with a low ACV for the total loss of your car.
Upon receiving the settlement offer from your insurance company, send them all your research in appraisals and a counteroffer of the amount of money you’d like to receive. Your research plays the role of evidence here.
You can also contact your state’s auto insurance regulator for assistance. Lawsuits and attorneys should only be used as a last resort. Besides, many lawsuits are never worth it because of the extra costs of legal expenses. Independent appraisals are usually significant in swaying your car insurance company to pay a fair price for your car without a lawyer.
Don’t Let a Totaled Car Keep You From Being Insured. Get a Free Quote Today!
Don’t let one car accident drain you financially; get cheap car insurance coverage today. Insurance Navy offers free quotes online via our website and mobile app. Call one of our insurance agents at 888-949-6289. More assistance may be provided in person at one of our many conveniently located storefronts.
