What Is a Total Loss? How Insurance Treats Totaled Cars
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Sometimes, no matter how carefully you drive and care for your car, you’ll find yourself with significant damage to your vehicle. A tree might fall on your car, an oncoming vehicle may swerve into your lane causing an accident or a flood could destroy it altogether.
In some instances, your insurance company might cover the costs to repair your car, but in other situations, your insurer might declare it a total loss. This can be an unsettling time, and you may not be sure what steps you should take. The more you understand about totaled cars and your options, the better prepared you’ll be.
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What Is a Total Loss?
A totaled car is considered a total loss. This terminology is used when your vehicle is so damaged that it can’t be repaired. It may also be totaled when the cost to repair it is more than your vehicle’s actual cash value before the damage occurred.
When Does an Insurance Company Consider a Vehicle a Total Loss?
When determining if your car is a total loss, your insurance company will compare the cost of repairing it versus its actual cash value (ACV). Factors affecting your vehicle’s current cash value include its make, model, number of miles driven, depreciation value, safety record, and number of resellable, salvageable parts.
To perform a total loss calculation, individual states or auto insurance companies apply a total loss threshold (TLT) or total loss formula (TLF), which bases the total loss decision on the estimated cost of repairs exceeding a percentage of the vehicle’s ACV. If the cost of repairs and salvage value exceeds its actual cash value, expect your car to be declared a total loss.
Every state and insurance company has total loss threshold guidelines. For example, Florida declares all vehicles as total losses when estimated repairs are 80% or more of their actual cash value. However, California and Texas take a slightly different approach, applying a “catch-all” total loss formula that declares a vehicle totaled if the cost of repairs plus its salvage value exceeds its actual cash value.
Potential Unknown Damage Considerations
In some cases, insurance companies may declare a vehicle totaled, even when the cost of vehicle repairs is significantly less than the vehicle’s actual cash value.
One reason for this approach is risk management. Often, new damages are discovered in days or weeks following an accident. In addition, adjuster vehicle evaluations may only focus on a vehicle’s underside and exterior, failing to find additional damages and increasing the estimated cost of repairs beyond the initial estimate.
This approach offers a way for insurance companies to protect themselves against hidden costs, declaring vehicles as a total loss to avoid paying for repairs.
What Happens Once a Car is Totaled?
Once a vehicle is totaled, adjusters are dispatched by your insurance company to perform a full appraisal. Adjusters are fully trained in evaluating damages, providing estimated vehicle repair costs, and declaring vehicles as total losses.
Adjusters calculate estimated repair costs and compare them to your vehicle’s actual cash value, reimbursing you for the difference (via the insurance company).
Leased or Financed Vehicles
If a financed vehicle is declared a total loss, you are still on the hook for paying off the outstanding loan balance out-of-pocket or using gap insurance. That balance will be deducted from the amount you’re reimbursed.
You are still responsible for the remaining lease amount if a leased vehicle is no longer drivable. However, if your auto insurance provider declares the car a total loss, they may pay you its actual cash value. Often, a totaled vehicle’s actual cash value is less than what is owed on a lease. In this case, the cost of the difference can be covered by a guaranteed asset protection (GAP) insurance policy, a provision under most leasing company contracts.
If You Owe More Than Your Car’s Value
If the remaining balance on a car loan exceeds your vehicle’s actual value, you will still owe that difference to your lender.
To protect yourself against this scenario, opt for gap insurance. Gap insurance is pretty simple: Pretend you are financing $35,000 for a brand-new Honda Accord. After 24 consecutive months of on-time payments, standard depreciation drops the vehicle’s value to $24,000, but you still owe $28,000 on the loan. A gap insurance policy would cover the $4,000 difference in this case.
Can You Keep Your Vehicle if it’s a Total Loss?
In most cases, accepting your insurance company‘s payout and applying it towards the cost of a new vehicle is worth it. However, you may decide to keep a totaled vehicle as sentimental value or to recover salvage parts for resale.
Contact your insurance company to learn about the process if you are considering keeping your vehicle (you may need to buy it back from the insurance company in many instances). Once your car is fixed, it will need to be inspected and classified as a rebuilt or salvage title vehicle.
Your options for insuring the vehicle may also be limited. You might only be eligible for liability insurance on your car because some companies might refuse to provide comprehensive or collision coverage for a car with a salvage or rebuilt title.
What Type of Insurance Covers a Totaled Car?
If your car is ever totaled, you want to ensure you have the necessary coverage.
These insurance options provide the most coverage for totaled vehicles:
- Collision coverage helps pay for collision-related damages (e.g., vehicle-to-vehicle, vehicle-to-object, or rollover collisions).
- Comprehensive coverage pays for non-collision-related accidents due to things outside your control, such as theft, vandalism, and fallen tree limbs.
- Uninsured/underinsured motorist coverage helps to protect you if you’re in an accident where another driver is to blame, but that at-fault driver doesn’t have insurance or doesn’t have enough coverage to pay for your damages.
- Gap coverage pays for the difference between the amount owed on your vehicle, and your insurance company is reimbursed based on actual cash value payout.
What Do I Do if I Believe My Vehicle is Totaled?
If you think that your car is totaled, you’ll need to complete specific steps with your auto insurance provider. While each insurance company is different, here’s a general overview of what you can expect.
File an Insurance Claim
When your car is damaged, start the claims process with your insurance company. Insurance companies allow policyholders to file claims via phone, email, or a dedicated online portal. Sometimes, a claims adjuster will be dispatched to your location, who will assess all damages before estimating the cost of repairs. An approved mechanic may also perform the assessment.
Have Your Vehicle Towed to a Body Shop
Your insurance company can’t require you to take your vehicle to a body shop that they choose, but they may be able to provide you with a list of body shops that they have already approved and that they work with regularly. You can ultimately decide which shop you work with, so you may want to check references and ask others for recommendations of local shops that do good work.
Your insurance policy may even reimburse you for minor on-site repairs (like replacing a flat tire or jump-starting a dead battery) before towing your vehicle to the nearest repair facility.
Research the Value of Your Vehicle
While you’re waiting to find out what your insurance company will pay you for your car, perform a little background research on your vehicle. Use reputable appraisal sites like Kelley Blue Book to determine your vehicle’s value before being declared a total loss. Knowing these figures will help determine if your insurance company‘s offering fair value reimbursement for your car.
Provide Requested Documents to Your Insurer
While your auto insurance provider processes your claim, expect to provide documentation such as your vehicle’s title and claims record. If financing or leasing your vehicle, retrieve the title from the leasing company or finance company.
Review Your Offer
Once your insurer has processed the claim, they will give you an offer for your totaled vehicle. Compare this offer with your Kelley Blue Book research, calculating your auto loan’s remaining outstanding balance and deducting it from the insurance offer.
If your auto insurance company is significantly undervaluing your vehicle, feel free to file a dispute. Disputes require that policyholders build the case for an updated fair market value based on comparable vehicles.
Fortunately, independent total loss appraisal services do exist. In exchange for a small fee, a private assessor may help you evaluate your insurance total loss settlement offer and check for any errors made by insurance companies in determining your totaled vehicle’s value.
Start Shopping for a New Car
Once you learn your final reimbursement amount, start shopping for new vehicles within a set price range. Payouts may be used toward a down payment on a new car or buying a used car outright.
Learn More About Total Losses and Insurance Claims
Interested in learning more about what to do in case your vehicle becomes totaled? Learn more about totaled vehicles with our guide on new car replacement insurance and the best car insurance companies for drivers after an accident.
Not satisfied with your insurer provider’s definition of a total loss claim? Compare.com allows you to compare quotes from reputable auto insurance companies like Liberty Mutual, Metromile, and Nationwide.
If you’re curious about what else is out there, get quick quotes from other providers without having to reach out to them all:
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