A totaled car is when a car insurance company decides that the cost to repair your vehicle exceeds (or is close to exceeding) what your vehicle is worth. With more than 10 million car and light truck accidents occurring each year, you may have to deal with this at some point.<\/p>\n\n\n\n
Depending on your state and whether you or another driver were at fault in the accident, the damage to your car may be covered either by your insurance policy or the other driver’s. If you file an insurance claim, your insurance company (and possibly the other driver’s) will assign a claims adjuster to your case. The adjuster’s job is to determine how much their company should pay out on the claim.<\/p>\n\n\n\n
The adjuster may conclude that your car is totaled, or a total loss, if it isn’t worth repairing or isn’t repairable at all. Insurance companies have their own formulas for making that determination. If an insurer totals your car, you can receive payment for what the company deems the car is worth. This is minus your policy\u2019s deductible. <\/p>\n\n\n\n
That means if your car is worth $5,000 and you have a $500 deductible, the auto insurance company would pay you $4,500.<\/p>\n\n\n\n
When a vehicle is totaled, it means the insurance company believes it isn’t worth repairing. The insurer may replace your totaled car with an equivalent one or offer you a cash payment equal to your car’s value.<\/p>\n\n\n\n
If you believe the insurer’s offer is too low, you can challenge it. Also, if you have a loan on the vehicle, you will still have to repay your lender in full. About half of the states use what is called the “total loss formula” (TLF). This is where the car is considered a total loss if the sum of the repair costs plus the salvage value of the car exceeds the car’s ACV.<\/p>\n\n\n\n
The formula for determining whether a car is \u201ctotaled\u201d varies by state. There are two common methods to determine a total loss:<\/p>\n\n\n\n
Claims against the other driver will fall under their policy’s property damage liability coverage. If your policy is the one that will be paying for the damage to your car, either your collision coverage or comprehensive coverage\u2014if you have any\u2014will be involved. <\/p>\n\n\n\n
To get an insurance payout for a car that is a total loss, you must have either\u00a0property damage liability\u00a0(PD) or\u00a0comprehensive or collision insurance\u00a0in your policy. PD is mandatory in every state, but the only way to receive a payout from it is to\u00a0file a claim\u00a0against another driver’s PD. For you to get compensation, the other driver must have been negligent in the accident.<\/p>\n\n\n\n
The easiest and surest way of getting payment for a total loss is through your own insurance company, which you can do through collision insurance. With collision claims, it does not matter whether you were at fault (you have to pay your deductible before the insurer will cover the claim though).<\/p>\n\n\n\n
Assuming you have these types of coverage in place \u2014 and that you are not injured or busy seeking medical care \u2014 your first step after the damage occurs would be to file a claim with your insurer as you would for any\u00a0accident. A claims adjuster will come to inspect the vehicle to assess the damage. It is here where the total loss designation will be made, if necessary.<\/p>\n\n\n\n
If the adjuster determines that the\u00a0cost to repair exceeds the actual cash value, or ACV, of the car, then it is considered a total loss. What constitutes a total loss is not always simple, and how it’s determined actually varies among states. Some states go by a “total loss threshold” (TLT), where damage only needs to exceed a certain percentage of the car’s value to be declared a total loss.<\/p>\n\n\n\n
Some states specify using\u00a0NADA\u00a0to determine a vehicle\u2019s value. Other states determine a car\u2019s value based on a current edition of a nationally recognized compilation of values, including databases.<\/p>\n\n\n\n
The factors used to determine a totaled car\u2019s value include:<\/p>\n\n\n\n
There are several optional auto insurance coverage types that help with a totaled car.<\/p>\n\n\n\n
Collision and comprehensive insurance\u00a0are often sold together. They cover a wide range of problems that could potentially total your car. This includes car accidents, car theft, vandalism, floods, fire, severe weather, collisions with animals and falling objects (like a tree).<\/p>\n\n\n\n
If your car is declared a total loss due to a problem covered by your collision or comprehensive insurance, you can file a claim with the insurance company. You\u2019ll get a check for the settlement amount (minus your deductible). You can use this to purchase a new car.<\/p>\n\n\n\n
If you\u00a0have a car loan\u00a0or lease, your lender or leasing company will likely require you to carry collision and comprehensive coverage.<\/p>\n\n\n\n
If your car is totaled due to a problem covered by your policy and you owe more on your car loan or lease than the settlement amount,\u00a0gap insurance\u00a0will cover the \u201cgap\u201d between the two.<\/p>\n\n\n\n
To qualify for gap insurance you will need to have collision and comprehensive insurance. You can typically buy gap insurance from your car insurance company, car dealerships, banks and credit unions. Standalone policies are available from companies like Gap Direct.<\/p>\n\n\n\n
How does gap insurance work? <\/p>\n\n\n\n
You have a $25,000 loan but your car\u2019s value was $22,000 when it was totaled. After your $500 deductible, you get a settlement check for $21,500. You still owe your lender $3,500. Gap insurance will cover this amount.<\/p>\n\n\n\n
New car replacement insurance\u00a0pays for a new car of a similar make and model (minus your deductible) if your car is totaled in an accident covered by your policy. This is better than getting a check based on the value of the vehicle at the time it was totaled.<\/p>\n\n\n\n
You\u2019ll need to have collision and comprehensive insurance in order to qualify for new car replacement coverage. Your car must also meet the car insurance company\u2019s age and mileage requirements. You typically cannot combine new car replacements with gap insurance.<\/p>\n\n\n\n
Here\u2019s an example of how new car replacement works<\/strong>.\u00a0You purchase a new car for $30,000. After several months, your car depreciates to $26,000 in value and is totaled by a flood. New car replacement coverage will pay for a new car of a similar make and model, not the depreciated value of $26,000.<\/p>\n\n\n\n If your car is totaled by a problem covered by your policy,\u00a0rental reimbursement insurance\u00a0covers rental car bills or other forms of transportation, like subway and bus passes. <\/p>\n\n\n\n This type of coverage can only be added to your policy if you carry collision and comprehensive insurance. It can be valuable coverage to have considering the total loss process usually takes longer than your typical\u00a0fender bender car insurance claim.<\/p>\n\n\n\n Uninsured motorist coverage\u00a0can kick in if you don\u2019t have collision insurance. In states where this coverage is available, you can use uninsured motorist property damage (UMPD) if an uninsured driver totals your car. (Or you can try to sue the other driver.)<\/p>\n\n\n\n However, UMPD may be insufficient because it will only pay up to the UMPD limit listed in your policy. For example, if your policy limit is $25,000 but your car\u2019s value is $30,000, you\u2019ll only get $25,000, leaving you $5,000 short. To avoid this problem, it\u2019s a good idea to buy collision insurance if your car\u2019s value exceeds your UMPD limit.<\/p>\n\n\n\n The insurance company will typically offer you a settlement amount based on the car\u2019s value if your vehicle is totaled. If you\u2019re making a claim on your own collision or comprehensive insurance, your deductible amount will be subtracted from your insurance check.<\/p>\n\n\n\n Here\u2019s an example of how an insurance claim for a totaled car might work:<\/p>\n\n\n\n A car insurance company pays what it estimates the vehicle was worth right before the accident and subtracts your\u00a0car insurance deductible.<\/p>\n\n\n\n An insurer takes into account a vehicle\u2019s make and model, and mileage. It also considers the sales price of similar cars in the area, the car\u2019s pre-loss condition and its salvage value.<\/p>\n\n\n\n Let\u2019s say that your vehicle was worth $10,000 when it was totaled. Here are two scenarios:<\/p>\n\n\n\n The amount you’ll be compensated for a total loss is the ACV, which is the same metric used to determine if the car is a total loss. The ACV of the car is determined by its pre-loss market value, less depreciation from when it was new. Ultimately, the ACV of your car will be determined by its wear and tear and age, along with other factors your insurer deems relevant. <\/p>\n\n\n\n It is very different from the number you would find on Kelley Blue Book (kbb.com) or edmunds.com. Most large insurers have their own method of determining the ACV.<\/p>\n\n\n\n Once you agree to the value, the insurer will pay you that amount, if you owned the car. If your car is leased or financed, then the compensation goes back to the leasing or financing company.<\/p>\n\n\n\n If you total a leased or financed car, there is a good chance you still have a decent amount left to pay. While the insurance company will pay you for the value of the car, it is very likely the value has depreciated and does not reflect the amount you agreed to lease. <\/p>\n\n\n\n If you drive a leased vehicle, you should consider taking out\u00a0gap insurance. This would cover you for any remaining balance in a lease.<\/p>\n\n\n\n If you disagree with your insurance company\u2019s settlement offer, you may be able to negotiate for a better settlement. Before you go this route, make sure you have supporting documentation, such as:<\/p>\n\n\n\n If your insurer rejects your counteroffer and you cannot come to an agreement, you can seek help from\u00a0your state\u2019s insurance department.<\/p>\n\n\n\n The easiest way to deal with a totaled car after an accident may be to simply let the insurance company pay you. <\/p>\n\n\n\n Depending on the insurance laws in your state, this might involve:<\/p>\n\n\n\n Note that if you believe the insurance company’s offer is too low, you can challenge it.<\/p>\n\n\n\n If you opt for a cash payment and still owe money on a car loan, the insurance company will generally make the check out to both you and your lender. After your loan has been paid off, any remaining money is yours to keep. However, if the insurance company’s payment is less than you owe on the car, you are responsible for paying the difference.<\/p>\n\n\n\n You may also be able to keep a totaled car, depending on your state.<\/p>\n\n\n\n Some states allow for what\u2019s called \u201cowner-retained salvage.\u201d If you choose to keep the vehicle, it will get a salvage title. If you want to make your car legally roadworthy, you\u2019ll need to follow your state\u2019s guidelines for repairs.<\/p>\n\n\n\n This typically involves having the car repaired and restored, followed by a state-approved inspection to confirm the vehicle meets the state\u2019s safety requirements. If your car passes the inspection, you\u2019ll get a \u201crebuilt title.\u201d<\/p>\n\n\n\n But you may run into some problems getting auto insurance for a rebuilt-title car. Car insurance companies view cars that had a previous salvage title as a higher risk to insure. Some car insurance companies won\u2019t offer optional coverage types (like\u00a0collision and comprehensive insurance) or won\u2019t offer any coverage at all.<\/p>\n\n\n\n In some cases, a totaled car may still be drivable. If it is, then you may choose to keep it and continue to use the car as-is. This might be something you’d consider if you don’t have collision or comprehensive coverage to pay for repairs.\u00a0<\/p>\n\n\n\n If you decide to keep driving a totaled vehicle, have it checked out by a mechanic first to make sure it’s safe.<\/p>\n\n\n\n Another option if your car insurance won’t pay for repairs is to keep the car and use it for spare parts. This might be worth considering if the make and model of your totaled vehicle are similar to those of another car you own. <\/p>\n\n\n\n If not, you could sell off spare parts that are still in good working order to other people who own the same type of vehicle.\u00a0<\/p>\n\n\n\n You need the vehicle\u2019s title and proof of ownership to sell a totaled car to a junkyard.<\/p>\n\n\n\n You may want to shop around and see how much multiple junkyards will give you for the vehicle. They will base the amount on the car\u2019s make and model and damage.<\/p>\n\n\n\n You may have to notify your state of the sale. That way, you\u2019re protected if someone drives your former vehicle and gets into an accident.<\/p>\n\n\n\n Donating a totaled vehicle to a nonprofit organization is another option. There are a number of charities that accept vehicle donations, including cars that have been totaled, to support their operations.\u00a0Charities might also tow it away without a charge.<\/p>\n\n\n\n An added benefit of donating a totaled vehicle to charity is that you may be able to claim it as a\u00a0tax deduction. If the nonprofit you donate your vehicle to sells it for less than $500, you can deduct the lesser of $500 or the fair market value of the car on the date that you donated it. If your donated vehicle is sold for more than $500, you can claim the amount for which it was sold.4<\/p>\n\n\n\n To support your tax deduction, be sure to get a receipt showing the date of your donation and the name of the nonprofit organization.<\/p>\n\n\n\n If you’re planning to buy another car, the dealership may allow you to use a totaled vehicle as a trade-in. It’s a good idea to get a professional appraisal of the vehicle to make sure a dealer is offering you a fair amount in trade. <\/p>\n\n\n\n A final option for dealing with a totaled car is paying to repair it yourself. You might consider this route if your insurance won’t pay for repairs, but you want to keep the car and make it road-ready again. <\/p>\n\n\n\n When weighing whether to repair a totaled vehicle, consider:<\/p>\n\n\n\n Some types of cars will be more expensive to repair than others. For example, parts for an older car may be harder to come by. However, it may be worth the added expense if the car has a higher value. You may also want to hold on to it for sentimental reasons.\u00a0<\/p>\n\n\n\n If you need to take out a loan to pay for repairs, consider what kind of payments you’ll be able to afford and how much you’ll pay in interest and fees. If you think you may trade in the car two years down the line, but it’ll take three years to pay off a loan, for example, it may not be worth it.\u00a0<\/p>\n\n\n\nRental reimbursement auto insurance<\/strong><\/h3>\n\n\n\n
Uninsured motorist coverage<\/strong><\/h3>\n\n\n\n
What happens if your car is totaled?<\/strong><\/h2>\n\n\n\n
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How much does insurance pay for a totaled car?<\/strong><\/h2>\n\n\n\n
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How are you paid for a total loss?<\/strong><\/span><\/h3>\n\n\n\n
Do I have to accept an insurer\u2019s settlement offer on a totaled vehicle?<\/strong><\/h3>\n\n\n\n
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Options for dealing with a totaled car<\/strong><\/h2>\n\n\n\n
Let the insurance company pay you<\/strong><\/span><\/h3>\n\n\n\n
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Keep your totaled car<\/strong><\/h3>\n\n\n\n
Leave the car as-is<\/strong><\/span><\/h3>\n\n\n\n
Keep the car for parts<\/strong><\/span><\/h3>\n\n\n\n
Sell the vehicle to a junkyard<\/strong><\/h3>\n\n\n\n
Give the vehicle to a charity<\/strong><\/h3>\n\n\n\n
Trade it in<\/strong><\/span><\/h3>\n\n\n\n
Repair it yourself<\/strong><\/span><\/h3>\n\n\n\n
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Recommended Articles <\/strong><\/span><\/h2>\n\n\n\n
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References<\/strong><\/span><\/h2>\n\n\n\n
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