Quick Facts About Totaled Cars
Accidents happen. A devastating weather event, like a hurricane or flooding, sweeps through the area, bringing floodwaters that overtake your vehicle. A driver is late to pick up their child from day care, runs a stop sign, and crashes into your car. Then, boom, your vehicle is totaled.
If you have auto insurance, you’d probably expect your insurer to cover the damage. Luckily, they will if the repairs cost less than what the car is worth. But if the damage costs more to repair than what it’s worth, the insurer will declare the vehicle a total loss. The company will then reimburse you for the actual cash value, or ACV, of the car — not the total cost of the repairs. In this article, we’ll help you out with some of that small print in your policy when the insurance company declares your car a total loss — also known as your car being totaled. We’ll tell you how your insurer arrives at that conclusion, your options, and the settlement. And we’ll answer a question or two you may not have considered. However, one caveat: The rules and regulations covering totaled cars vary by insurance company and state.
Here’s how it works.
What Is a Totaled Car?
Insurance companies “total” a car when the cost to repair the damage exceeds the vehicle’s book value at the time of the crash. It’s a function of basic math and the regulations in your particular state.
Also, insurers total a car that they consider would still be unsafe to drive even after making all the needed repairs. They may also declare it a total loss if it would be unsafe to drive, even if you fix it.
If the insurer totals your car, they will pay you the vehicle’s actual cash value (ACV). The actual cash value is how much the car was worth just before the loss. It includes a reduction in value for depreciation, so the ACV will be less than what you paid for the vehicle, even if it’s relatively new.
LexisNexis Risk Solutions’ latest Auto Insurance Trends report shows that total loss claims accounted for 27% of collision claims were total losses for 2022. That’s up from 24% from 2021. The trend report also shows that the rising number of claims has slowed down processing.
For Ivy Siltala of the Phoenix, Arizona, metro area, it took State Farm 10 weeks to total her 2023 Toyota Corolla XSE and cut her a check for an accident that was not her fault. During that time, she took the bus to and from work after coverage for a rental car ran out. Siltala’s claim may have taken longer because the insurer found her to be 50% liable. However, she hired someone to read her Toyota Corolla’s event data recorder (EDR), or little black box, to prove she did not cause the accident.
What Is the Book Value of a Car?
“Book value” is another way of saying “market value.” For instance, Kelley Blue Book closely monitors the automotive market, keeping track of what every make and model currently sells for as it ages. Whatever the ACV is at any given time is its book or market value.
What Happens If My Car Is Totaled?
If the insurance company declares your car a total loss, they will reimburse you for the fair market or book value of the vehicle immediately before the loss occurred, minus your deductible and any other fees. The type of accident will determine which kind of insurance covers the event. For example, collision insurance covers accidents with other cars or immovable objects, such as telephone poles.
Skip ahead to learn more about the other types of car insurance coverage you may need for events like flooding and more that could total your vehicle.
When Is a Car Considered Totaled?
Here’s where your insurance company’s policies and your state’s regulations come into play. Each state sets its threshold for declaring vehicles a total loss, but carriers may choose to use a lower threshold. The insurance company will often total a car even if the repair costs are less than the vehicle’s actual cash value — sometimes a lot less. That’s because it can be difficult to determine the full extent of the damage before repairs begin.
For example, the state threshold for totaling a car in Alabama is 75% or greater of its actual cash value. Let’s say you have a vehicle worth $10,000. Under state law, the insurer must declare it a total loss if the damage costs $7,500 or more. However, if the insurer’s threshold is 60% of the ACV, the vehicle will be totaled when repair costs are $6,000 or more.
“The reason that some carriers [use a lower threshold] is because when you’re adjusting a vehicle, and you’re looking at it after a loss, it’s still together. And all you can see, for the most part, is the exterior of the vehicle and the undercarriage. When the body shop takes the vehicle apart and pulls the panels back, they typically find more damage,” said Josh Damico, vice president of insurance operations at Jerry, a car insurance comparison service.
If the body shop finds more damage after they begin the repairs, they file a supplement with the insurance company for the additional damage. “Some carriers have an idea of what supplements are going to look like on a damaged vehicle. They consider this upfront when determining when they will declare a vehicle a total loss,” he said.
What Insurance Covers a Totaled Car?
The type of insurance coverage that kicks in if your car is totaled depends on the circumstances of the loss. Here are four kinds that might cover a total loss.
- Collision: Kicks in if you’re in a crash with another car or immovable object, such as a fence or lamppost. Read our story on collision insurance.
- Comprehensive: Covers damage not crash-related but caused by many different things, including hurricanes, floods, and other severe weather, vandalism, theft, animals, and more.
- Property damage liability: If you’re in an accident and another driver is at fault, their property damage liability coverage should pay for the damage to your vehicle — if they’re insured.
- Uninsured/underinsured motorist: Your uninsured/underinsured motorist property damage liability should cover you if you’re in an accident where the at-fault driver is not insured. If you don’t have this type of coverage but have a collision, it will not pay for the repairs.
If you have a loan or lease, the lender will probably require you to maintain collision and comprehensive. Otherwise, these coverages are optional in every state.
You could skip them, but you’re putting yourself at risk if you only have liability coverage to meet your state’s minimum insurance requirements. Liability coverage only pays for injuries and damage you cause to someone else. It won’t cover repairs to your vehicle if you’re at fault in an accident or have non-crash-related damage.
If you’re looking to compare car insurance or find additional coverage, you can learn more about the most common types of car insurance.
Should I Get GAP Insurance?
If you have a car loan or lease, you still have to pay your lender even if your car is totaled and you can no longer drive it. However, the insurance company will only pay the car’s ACV at the time of the loss. Since vehicles depreciate quickly, that may not be enough to pay off what you owe if you’re leasing or financing the purchase of your car—especially if you put little or no money down.
You’ll be responsible for making up the difference unless you have GAP coverage. GAP covers the difference between the amount you owe on your loan or lease and what the insurance company pays. Many policies even cover your collision or comprehensive deductible.
GAP insurance is often relatively inexpensive. Your insurance agent can help you with it. We think GAP insurance makes sense and is worth the extra cost.
How Do Insurance Companies Determine a Total Loss?
To determine whether a car is a total loss, the insurance company must calculate the vehicle’s actual cash value immediately before the loss occurs and estimate the amount of damage. Most insurers work with a third-party vendor that aggregates vehicle data to determine the ACV. The insurance company will then send an adjuster to inspect the damage and estimate the repair costs.
If the damage exceeds the threshold the state or insurance company sets for totaling a car, the insurer will declare it a total loss. If this happens, the carrier will reimburse you for the ACV of the vehicle.
How Is Total Loss Calculated?
Depending on the state in which you live, your insurance carrier will use one of two methods for determining a total loss.
- Fair Market Value
- Total Loss Formula
Some states bind insurance companies to one or the other.
What Is the Fair Market Value of a Car?
A car’s fair market value (FMV) is its book value at any specific time. For our purposes here, that specific time is right before the event, like a flood, a crash, or a tornado. With the fair market value method, the state sets a percentage of the FMV as the threshold for declaring a car totaled. In our Alabama example above, the state’s set percentage is 75%. Some states, like Oklahoma, use a lower percentage (60%), while others, like Colorado, set a higher percentage (100%).
Whatever the percentage, the insurance carrier will total your car if estimated repairs exceed that percentage of the fair market value.
What Is the Total Loss Formula?
In states without that percentage threshold, insurance carriers base totaling a car on a total loss formula. Here, the number at which they will total a car is the fair market value minus the car’s salvage value or the amount the insurance company can get for your car at a junk or salvage yard.
Let’s say your vehicle’s fair market value is $15,000. The insurance company approaches a salvage yard to see what it would pay for your wrecked car. Let’s say the salvage value comes to $4,000. Subtracting $4,000 from $15,000, leaves $11,000. In this example, if the estimated repairs exceed $11,000, the insurance company would total your car.
Steps To Take When Your Car Is Totaled
If your car is totaled, there are a few steps to take to settle your claim and get back on the road.
- File a claim. Contact your insurer to file a claim just as you would if you were in a fender bender.
- Assess the damage. The insurance company will send an adjuster to assess your vehicle’s damage. The adjuster will conduct a visual inspection to estimate the cost of repairs.
- Know your car’s fair market value. The insurer will use the actual cash value of your car immediately before the damage to decide whether to declare your vehicle a total loss. You can estimate your car’s fair market value from tools like Kelley Blue Book or by checking to see what similar cars are selling for in your area.
- Contact your lender (if applicable). If you have a loan or lease, your vehicle is what is securing your financing. So, you must inform the financing company about the damage and continue paying. If you stop, it could negatively affect your credit, making it more challenging to get financing for a new vehicle. When the insurance company settles your claim, they’ll pay the lender or leasing company.
- Negotiate the claim with the insurer. If you think the insurance company’s assessment of your car’s actual cash value is too low, you can negotiate the payout. But you’ll need to show why your car is worth more than what the insurer is offering.
- Shop for a new or used car. The payout you receive from the carrier likely won’t be enough to buy a new version of your old car. But you can use it for a down payment.
Can I Keep a Totaled Vehicle?
You might be able to keep a totaled vehicle, but it depends on your state’s laws. “The best way to start this process is to talk to your carrier about purchasing the totaled vehicle back,” Damico advised. If you can buy back the car, you’ll need to contact your local DMV to find out what forms you need to complete and the steps to take to start the purchase.
If you’re allowed to keep the car, you won’t be able to drive it right away. “Once a car is deemed a total loss, it has to be repaired, pass inspection, and ultimately you’ll be given a rebuilt or a salvaged title for the vehicle,” Damico said. You’ll need to provide the title and proof of inspection to the DMV to register the car so you can drive it on the road.
And don’t forget about car insurance. You can’t legally drive without it in most states. However, you may be limited in the types of coverage the insurance company is willing to sell you. “Some insurance companies only insure salvaged or rebuilt-titled vehicles for liability only,” Damico said. “They wouldn’t cover it for comprehensive or collision coverage because it’s difficult to assess the current condition of the vehicle.”
If you don’t plan on driving your totaled vehicle, you may also be able to:
- Keep and use it for parts on another car, or sell the parts for extra cash.
- Sell it to a junkyard or salvage yard.
- Donate it to a local charity.
Keeping a Totaled Car
Hanging on to your car after an insurance company totals it is mostly a simple negotiation. The initial step is making the insurance carrier aware of your wish to keep the car. Typically, the insurance company will not care whether you keep your car or not because it will wind up paying out the same amount of money either way.
The company will begin with the car’s fair market value. It will deduct whatever it would have recovered for selling it to a salvage yard from that amount. It will also subtract any deductible due from that amount. You get whatever is left over and the car.
Pros vs. Cons of Keeping a Totaled Car
Does keeping a totaled car make sense? Generally, we’d say no. Keeping that totaled car can lead to trouble beyond its worth. At least 90% of the time, you will be better off letting the insurance company total it and walk away.
However, see our pros and cons below to help you decide if keeping a totaled car is worth your time, trouble, and expense.
Pros
- An older car with a low market value might be totaled with only cosmetic damage. In this case, you may not need to fix it at all.
- You can use it as a parts car for restoration or repair projects.
Cons
- Once repairs begin, if surprises come up, the car may cost more to repair than the original estimate.
- Once repaired, the car must pass a state inspection.
- You must apply for a salvage or rebuilt title that identifies the car as having been a total loss.
- A salvage or rebuilt title will make insuring and eventually disposing of the vehicle tougher.
How Can I Total My Car Out?
You can’t. Insurance companies decide whether to total a vehicle based on its worth and the extent of the damage. If the vehicle’s repair cost exceeds a certain percentage of its ACV, the insurer will declare it a total loss. The insurer won’t total it if it doesn’t exceed the threshold.
How Much Can I Expect From Insurance for a Totaled Car?
It depends on the vehicle. When an insurance company totals a car, it typically pays the vehicle’s ACV immediately before the loss occurred. The ACV factors in depreciation, including wear and tear, mileage, and previous accidents, so the reimbursement amount will be less than what you paid for the car.
You can use the settlement money from the insurance company to help you buy a new or used vehicle. However, it won’t be enough to cover a new version of the same car unless your insurance policy includes new car replacement coverage. Or you purchased an additional GAP insurance policy.
How To Fight a Total Loss Settlement
If you don’t think the insurance company’s payout is fair and believe it is lowballing you on a total loss settlement, you can dispute it by submitting a counteroffer.
“If you can’t resolve it with the adjuster, you can go out and hire a private appraiser,” Damico said. But you’ll have to pay for it out of pocket. If the appraiser’s estimate is higher than what the insurance company offers, you can use it to negotiate. If not, you may need to accept the insurer’s offer. For the insurance company to seriously consider your counteroffer, here’s what to do:
- Get an appraisal. Secure an independent appraisal by a professional appraiser.
- Find the book value. Provide documents proving the car’s book value at the time of the crash. Kelley Blue Book can help with that information.
- Research and provide pricing. Check out prices for comparable vehicles selling in your market.
- Submit the counteroffer. Provide the counteroffer and all the background documents to the insurance company.
- File a complaint. If the insurance company still refuses to budge, file a complaint with the department in your state regulating insurance companies.
- Hire an attorney. If all else fails, hire an attorney and file a lawsuit against the insurer.
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Editor’s Note: This article has been updated for accuracy since it was originally published. Jennifer Brozic contributed to this article.
