Total Loss in Car Insurance

My insurance company says my car is a “total loss.”  What does that mean? As careful as you may be while driving, accidents can happen. When they do, you want to get your car repaired as fast as possible. Unfortunately, there may be a chance that your car is deemed a total loss. This will create different circumstances for you from a car insurance standpoint.

Total Loss in Car Insurance

Total Loss in Car Insurance is when your car repair cost is more than the actual cash value. Your vehicle can also be declared a total loss when it is damaged beyond repair. Depending on your location, the state law may determine the point at which your car can be deemed a total loss.

How a Car is Determined to Have a Total Loss

Whether your car is considered a total loss depends on various factors, such as the repair costs and your car’s value. Your insurer looks at how much it would cost to fix your car compared to its value, including factors like mileage, make, and model. They also consider if any parts can be salvaged and resold.

Some states require a car to be declared a total loss if repair costs exceed a certain percentage of its value, known as a total loss threshold. In other states, it’s based on repair costs and salvage value compared to the car’s actual cash value, known as a total loss formula.

What happens After my Car is Declared a Total Loss?

If your car is declared a total loss by your insurance company, there are a few steps you need to take:

  • Remove your license plates and personal belongings from the car.
  • Give the key to the claims adjuster.
  • Provide any additional keys you have.
  • Fill out the necessary paperwork.
  • If you lease your car, inform the leasing company.

Once these steps are completed, your insurance company will usually take possession of the car and notify the Department of Motor Vehicles that it’s been totaled. In some states, the car may be labeled as “salvage” and sold to salvage buyers. If you want to keep the totaled car, your insurance company may allow it, but you’ll receive less cash. This payment is the actual cash value minus the salvage value. Remember, some states have restrictions on keeping total-loss vehicles.

If you disagree with the total loss decision, you can negotiate with the claims adjuster. Provide documentation and evidence to support your case, such as any modifications you made to the car. If you’re not satisfied with the outcome, you can seek legal advice to pursue further action.

How will I be paid for a Total Loss?

When your car is declared a total loss, the amount you receive is called the actual cash value (ACV). This is determined by considering the car’s market value before the loss, minus depreciation. Your car’s wear and tear, age, and other factors affect its ACV. It’s not the same as what you’d find on normal sites because insurers have their methods.

If you agree to the ACV, the insurer will pay you that amount if you own the car. But if it’s leased or financed, the payment goes to the leasing or financing company.

If you wreck a leased or financed car, you might still owe money. Even though the insurance pays for the car’s value, it might not cover what you owe. Gap insurance can help with this, covering the difference in a lease if your car is totaled.

What if I lose money on a Total Loss in Car?

If your vehicle is declared a total loss and it’s leased or financed, the lending company. Or leasing agency holding the vehicle title will get the claim settlement. If the settlement exceeds what you owe, you’ll get the difference. Also, if it’s less, you’re responsible for the remaining debt.

To avoid financial strain, consider gap insurance. It covers the gap between your car’s value (what your standard policy pays your lender) and your remaining balance. Gap insurance is often required for leases or recommended for loans with small down payments or long terms.

You can buy gap insurance from your dealer, lender, or some insurance companies. It’s a small expense, usually adding about $20 a year to your premium, and can be added to collision and comprehensive coverage.

Can I keep a Total Loss in the Car?

After your car is deemed a total loss and a settlement is reached, your insurer usually takes possession of the vehicle. Depending on state laws, you might be able to keep or buy back the car to repair and drive it again. But before doing so, you’ll need to get it inspected, titled, plated, and insured in your state. Contact your insurer and local DMV for the steps needed to buy back your totaled car.

If you decide to keep the car but not drive it, you can sell usable parts, use them for another vehicle, sell the damaged car to a junkyard, or donate it to charity.