Totaled Car: What Happens When Insurance Totals Your Car?

Got into a bad car wreck recently and not sure if your vehicle is totaled or not? If you have car insurance, you probably expect it to cover the cost of your vehicle repairs and medical bills. But what if the at-fault driver is uninsured? Or you caused the accident that totaled your vehicle? Learn how auto insurers estimate the value of a totaled car, steps to take next, and more helpful info below.

Car Was a Total Loss? Key Takeaways & What to Do Next

• Bookmark or download this free car accident checklist so you’re always prepared if and when it happens to you.
• Insurers will assess the damage and determine if your car is a total loss, considering factors like the vehicle’s age, condition, and mileage.
• If your car is totaled and the accident wasn’t your fault, expect a settlement offer from the insurance company based on its fair market value. But this process can take weeks or months, so you likely will need a rental car or other short-term transportation.
• If you caused the accident that totaled your car and only have liability insurance, your policy won’t cover your losses. Instead, you may have to cover the cost of purchasing another vehicle or any repairs out of your own pocket. You must have uninsured/underinsured motorist or collision coverage to receive a payment if you caused your car wreck.

When is a Car Considered Totaled?

If an insurer decides your vehicle isn’t worth the money it costs to fix it, then your car is totaled. However, certain states have laws that define what counts as a totaled vehicle based on a certain percentage threshold.

Understand that this does not necessarily mean that your totaled car is not drivable, or repairable. But the insurance company won’t pay more to fix it or make it safe to drive again if it costs more than the car’s worth.

What is the “Book Value” of a Car?

This is another term insurers use instead of fair market value. Basically, it’s how much money your vehicle was worth to a willing buyer right before your accident. “Book value” more specifically means your car’s recorded value on a balance sheet, minus depreciation.

How Actual Cash Value for Your Totaled Car Differs from its Book Value

The insurance company decides your car’s actual cash value (ACV), which is the amount your policy pays for a total loss. It can calculate the ACV on your vehicle by calculating the cost to repair or replace your car, minus depreciation. Some insurers may also use the fair market value of your totaled vehicle to determine its ACV amount.

What Happens After My Car is Totaled?

After you report your accident, be sure to ask if your insurance policy includes rental car coverage. Most policies do, provided you are not at fault for causing the accident. The insurer should tell you how much money you’re allowed to spend on a rental car each day and for how long. That way, you have transportation while you decide whether to repair or replace your old vehicle.

The next thing the insurance company will do is determine your totaled car’s salvage value. Then, the claims adjust subtracts that amount from your vehicle’s actual cash value. They’ll also subtract the amount of any deductible you might owe, along with any other necessary fees. Those calculations determine the amount of any settlement offer you might receive from your insurer.

Next, the claims adjuster reports your totaled vehicle to your state’s Department of Motor Vehicles (DMV). You’ll need to get a salvage title from your state’s DMV if you choose to keep the car after that.

How Do Insurance Companies Determine if a Car is a Total Loss?

How Do They Calculate Total Loss?

Depending on where your accident happened, there are two ways for an insurer to calculate total loss on you vehicle:

1. Total loss formula (TLF). This means the insurer compares your car’s ACV, total repair costs, and its salvage value.
2. Simple percentage threshold formula using your car’s fair market value. In such cases, state law says if repairs cost above a certain percentage, then your car automatically counts as totaled.

Here’s an example of how insurance companies calculate total loss in different states, assuming your car’s actual cash value is $20,000.

State 1 uses the TLF method to calculate your car’s damages and decide whether it’s totaled. The body shop estimates it will cost $16,000 to fix, and your car’s salvage value is $2,000. In this example, the insurer would not total out your car because $18,000 is less than $20,000.

State 2 has a law that says if it costs at least 80% of your car’s fair market value to repair it, then it’s automatically totaled. In our example, $16,000 is exactly 80% of $20,000, so your car insurance policy would declare it a total loss.

Some states that use the simple percentage threshold method to calculate whether your vehicle is a total loss include:

• 60% – Oklahoma
• 65% – Nevada
• 70% – Arkansas, Indiana, Iowa, Minnesota, Wisconsin
• 75% – Alabama, Kansas, Kentucky, Louisiana, Maryland, Michigan, Nebraska, New Hampshire, New York, North Carolina, North Dakota, South Carolina, Tennessee, Virginia, Washington, D.C., West Virginia, Wyoming
• 80% – Florida, Missouri, Oregon
• 100% – Colorado, Texas

All other states use the total loss formula to calculate the threshold for defining what counts as a totaled car.

What Is the Fair Market Value of a Car?

According to Treasury Regulation §1.170A-1(c)(2), fair market value is “the price at which property would change hands between a willing buyer and a willing seller.” That definition applies as long as neither the buyer nor seller are forced to transfer ownership against their wills. It also assumes both the buyer and seller have reasonable knowledge of all relevant facts about the property for sale.

What’s the Salvage Value of My Totaled Car?

Salvage value means the estimated value of an asset that’s at the end of its useful life.

What if My Financed Car is Totaled?

Most people have to finance the cars they drive with a loan or lease agreement that requires a monthly payment. If you haven’t paid off your car yet, your lender may require you to have comprehensive or collision coverage on that vehicle. However, once it’s paid off, that type of insurance coverage becomes completely optional in every U.S. state.

If you still owe money on your car, here are the steps to take next:

1. Determine who’s at fault for causing your accident. If it’s you, then your only choice is to contact a claims representative for your own insurance company. But if someone else is at fault and you have injuries, you should contact an auto accident lawyer for a free consultation.
2. Keep making car payments each month on time throughout the claims process. This is critical to maintain your good credit rating until you cash in your settlement offer and close out your claim.

What if I Have Gap Insurance Coverage?

If you take out a loan to pay for your car, then your may require you to have a gap insurance policy. In this context, “gap” actually stands for “guaranteed asset protection” coverage. Gap insurance pays the difference between the remaining amount you owe and how much your totaled vehicle is worth.

In plain English, this means you won’t have to pay any extra money if you have gap insurance coverage on a totaled car. Here’s an example:

Your car loan is for $51,000. But the appraiser says your vehicle is worth $48,000. Without gap insurance coverage, you’re on the hook for paying that extra $3,000 you still owe on your vehicle.

What Type of Car Insurance Will Cover a Totaled Car?

There are four types of car insurance that might apply to your claim, depending on the accident that totaled your vehicle:

1. Comprehensive. This policy covers your totaled vehicle when the cause of your accident was out of any individual driver’s control. Some examples might include vehicles damaged by tornadoes, hurricanes, wild animals, fires, or falling trees. It pays for the actual cash value of your totaled vehicle minus any required deductible, regardless of what damaged it.
2. Collision. If you crash into another vehicle, guardrail, tree, or street sign, this policy covers the value of your damaged vehicle regardless of fault. However, it doesn’t cover the cost of any required deductible from your insurer.
3. Property Damage Liability. If the driver who caused the accident has car insurance, their liability policy should cover your car’s ACV.
4. Uninsured/Underinsured Motorist. This type of policy covers you if you’re in an accident where the at-fault driver has no auto insurance. It may also kick in if the other driver has too little coverage to pay all the damage to your vehicle.

Steps to Take After Your Car Is Totaled

If you think your car’s totaled, here are the steps to take, in order:

1. Call 911 and seek medical attention for any injuries you may have as soon as possible. It’s important to report your accident so officers on the scene can create an official police report. And in some states, failing to report an accident with serious damage or injuries is actually a crime.
2. Exchange contact and insurance policy information with other drivers at the accident scene. This is crucial if your accident involved any other vehicles.
3. Contact the at-fault driver’s insurance company to start the claims process. Once you report the accident, the insurer can send out a claims representative to assess your damage. This involves visually inspecting your car to estimate the cost of your vehicle repairs.
4. Look up your car’s fair market value or estimate it. You can do this by looking up your car’s resale value in the Kelley Blue Book, for example. You can also ask local car dealerships and private sellers how much similar vehicles in your area sold for recently.
5. Contact your car loan or lease provider if you’re still making monthly payments. You need to notify the lender about your accident and the damage involved to your vehicle. The insurance company may need to send separate checks to the body shop and the lender who owns your loan or lease agreement.
6. Negotiate your claim’s settlement offer with the insurance claims adjuster. You may get a much higher settlement offer if a car accident attorney handles this step for you.
7. Hand over your totaled vehicle’s title to the insurer to transfer ownership. You’ll need to sign the title and physically deliver the original document to complete this step.

How to Replace Your Car

Once you get an acceptable settlement offer, you can put that cash towards the down payment on a new or used vehicle. This payout amount is almost never enough to buy a new car to replace your old one. However, you can use it to sign a new lease, buy a used car in fair condition, or pay the deposit on a new model you can afford.

Can I Keep My Totaled Vehicle?

Some states (like Illinois) make it illegal to keep your totaled car, mostly for safety and insurance reasons. But others may let you keep it as long as you complete certain steps and paperwork. First, be sure to discuss this option with your insurance carrier and get their permission. Then, understand what you can do with a car that’s considered totaled and if it’s worth the hassle.

Pros & Cons of Keeping Your Totaled Vehicle

• Pro: You can strip down the old car for parts to use for new repairs, restoration projects, or sell them for cash. This is smart if you own a rare vehicle or older model that’s hard to find parts for these days.
• Con: You’ll have to apply for a salvage or rebuilt car title that shows it was a total loss in order to keep it. But either title will make it much harder to get insurance or dispose of that vehicle later. Many states make it impossible to insure a car with a salvage title. It’s also against the law to drive one on public roads in many places.
• Pro: If it’s an older model car that only has body damage, you might be able to drive it with few or no repairs.
• Con: If you decide to fix the damage, it may cost you more than the original estimate you received. And the repaired car must still pass a state inspection and safety tests in order for you to drive it. The car’s resale value also goes down significantly if it’s totaled (meaning -10% or more).

How Much Will My Insurance Pay Me for My Totaled Car?

The insurance claims adjuster will take several factors into account when estimating your payout, like your old car’s:

• Make
• Model
• Age
• Condition
• Mileage
• Current resale value
• How much similar vehicles in your area sold for in recent months

However, you should understand that insurance will not pay the full replacement cost to swap your damaged vehicle with an exact copy. Instead, you’ll get a check for your car’s market value minus its salvage value and any deductible you may owe.

If you feel the settlement offer is too low, you might be right. And if the at-fault driver’s policy denies your claim, contact an auto accident attorney for a free consultation.

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