Alyssa Lane
Being involved in a car accident is stressful enough, but what happens when your car is totalled? A totalled car is when the cost to repair your vehicle exceeds or is close to exceeding what your vehicle is worth. This is also known as a total loss. Each insurance provider has a formula for determining whether or not to total your car, which may vary from one provider to the next. When a car is totalled, the insurance company will pay out the vehicle's actual cash value (ACV) – that is, the resale price of the vehicle before it was involved in a major accident.
| Characteristics | Values |
|---|---|
| When a car is considered totaled | When the cost of repairing the car exceeds its value, or the car is unsafe to drive even after repairs |
| How insurance companies determine a car is totaled | The insurance company calculates the vehicle's actual cash value (ACV) before the loss and estimates the amount of damage |
| What happens when insurance totals a car | The insurance company will make a settlement offer, and if accepted, the owner transfers the car's title to the insurance company and receives the total loss settlement |
| What insurance pays for a totaled car | The insurance payout for a totaled car is typically the car's actual cash value (ACV) before the damages |
| Who gets the insurance check for a totaled car | If the car is financed or leased, the check goes to the leasing company or lender; if the car is owned outright, the owner receives the check |
What You'll Learn
What is a totalled car?
A "totalled" car is one that has been deemed a total loss by insurance companies. This means that the cost of repairing the vehicle is higher than its actual value, or that the car is not repairable. This is usually the case when the cost of repairing the damage exceeds the vehicle's book value at the time of the crash.
Each US state sets its own threshold for declaring vehicles a total loss, but insurance carriers may choose to use a lower threshold. For example, in Alabama, a vehicle is considered a total loss if the cost of repairing it meets or exceeds 75% of its actual cash value. However, if the insurer's threshold is 60% of the ACV, the vehicle will be totalled when repair costs are $6,000 or more for a car worth $10,000.
Insurance companies will typically complete an inspection of the damaged vehicle before officially declaring it a total loss. When assessing your vehicle, most insurers factor in the condition and structure of your car, in addition to any state laws. Some insurance companies will also total a car if they consider it would be unsafe to drive, even after all necessary repairs have been made.
If your car is totalled, the insurance company will pay you the vehicle's actual cash value (ACV) – how much the car was worth just before the loss, including a reduction in value for depreciation. If you still owe money on the vehicle, the insurance company will generally make the cheque out to both you and your lender. If the insurance payout is less than you owe on the car, you are responsible for paying the difference.
If you believe the insurer's offer is too low, you can challenge it. You can hire a private appraiser to provide an independent assessment of your vehicle's value, which you can then use to negotiate with the insurance company.
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How is a total loss calculated?
There are a few methods for calculating a total loss. The first is based on the fair market value of the vehicle. The fair market value is the book value of the car at the time of the crash. The state sets a percentage of the FMV as the threshold for declaring a car totalled. For example, if the FMV of a car is $15,000 and the state's set percentage is 75%, the insurance company will total the car if the cost of repairs is more than $11,250. The percentage threshold varies from state to state, ranging from 50% to 100%.
The second method is the total loss formula, used in states without a set percentage threshold. In this case, the number at which insurance companies will total a car is the fair market value minus the car's salvage value. Using the previous example, if the FMV of a car is $15,000 and the salvage value is $4,000, the insurance company will total the car if the cost of repairs is more than $11,000.
Insurance companies are required to pay the actual cash value (ACV) of a totalled car. The ACV is the cost to repair or replace the vehicle, minus depreciation. The ACV is not the same as the replacement cost value, which is the cost of replacing the vehicle. The ACV is calculated using the vehicle's make, model, year of production, odometer mileage, condition, and accident history.
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What happens when a car is totalled?
If your car is involved in an accident, natural disaster, or act of vandalism, it may be deemed a "total loss" or "totaled" by your insurance company. This means that the cost to repair the damage exceeds the vehicle's book value at the time of the incident, or that the vehicle is unsafe to drive, even after repairs.
When this happens, your insurance company will typically send an adjuster to assess the damage and determine whether the car is indeed a total loss. If it is, the company will offer you a settlement based on the car's actual cash value (ACV) or fair market value, minus any deductible you may have.
If you own the car outright, the settlement check will be given to you. However, if you still owe money on the vehicle, the check will go directly to the leasing company or lender. In this case, you will need to continue making payments on the car until the insurance company issues the payment.
You may be able to keep your totaled car, depending on your state's laws. If you choose to do so, the insurance company will deduct the amount they would have received from selling it to a salvage yard from your settlement payout. You will then need to apply for a salvage or rebuilt title, as most states require this for vehicles that have been declared a total loss.
It's important to note that keeping a totaled car can have potential drawbacks. It may be difficult to insure a car with a salvage title, and you may be limited in the types of coverage available. Additionally, you will need to ensure that the car meets your state's safety requirements before you can drive it again.
In summary, when a car is totaled, the insurance company will assess the damage, offer a settlement based on the car's value, and take possession of the vehicle if you choose to accept the settlement. The settlement check will go to the leasing company or lender if you still owe money on the car. You may be able to keep the car, but it will likely require additional steps and may impact your insurance options.
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How do insurance companies determine the value of a totalled car?
When a car is involved in an accident, the insurance company will determine whether it is a total loss or can be repaired. A car is considered a total loss when the cost of repairing it exceeds its value at the time of the incident. This value is known as the actual cash value (ACV) and is calculated by considering factors such as depreciation, age, brand, model, trim level, and mileage.
To determine the ACV, insurance companies typically use third-party vendors that aggregate vehicle data. They will then send an adjuster to assess the damage and estimate repair costs. If the damage exceeds the insurance company's total loss criteria, they will declare the vehicle a total loss and agree to pay the vehicle's ACV.
The process of determining a car's value and whether it is a total loss can be complex and vary across different insurance companies and states. However, the basic principle is that insurance companies will pay the vehicle's ACV, which is the amount the vehicle was worth immediately before the loss, taking into account depreciation and other factors.
It is important to note that the ACV may not be sufficient to repay the remaining balance on a car loan, and additional coverage, such as gap insurance, may be necessary to cover the difference.
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What happens if you still owe money on a totalled car?
If your car is totalled and you still owe money on it, you are generally still responsible for paying off the remaining balance. Usually, the insurer pays the lender or leaseholder first and gives you the rest of the settlement money if there's any leftover.
If you have insurance, your insurer will send a payment to your lender for the actual cash value of the car, minus any deductible. Make sure you give your lender's contact information and the account number to your agent or insurance company.
If you don't have insurance, you will have to continue making loan payments until your loan is paid off. You will also have to pay for all accident-related expenses (medical bills, property damage) out of pocket.
If the accident was not your fault, contact the at-fault driver's insurance company with your lender information. To maintain your good credit, you should continue to make your loan or lease payments until the insurance company issues payment to your lender.
If the insurance payment isn't enough to pay off your loan, gap insurance can cover the difference between what you owe on the vehicle and the vehicle's actual worth, so you aren't responsible for the total outstanding balance on your loan or lease.
If you choose to keep and repair your totalled car, you'll likely need to get a rebuilt title from your state's department of motor vehicles and insurance before you can legally drive it. Getting insurance with a rebuilt title is possible but not easy. Some insurers won't cover rebuilt cars at all, while others offer liability coverage only.
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Frequently asked questions
A total loss is when a car is damaged beyond repair and is no longer drivable. This could be due to a car accident, natural disaster, or act of vandalism.
Insurance companies use varying methods to determine whether a car is a total loss. Some use a total loss threshold, where a car is declared a total loss when the cost of repair is more than the state's set percentage of the car's actual cash value (ACV). Other states use a total loss formula, which is: Cost of Repair + Salvage Value ≥ Actual Cash Value.
After you file a claim, an adjuster will review the damages to your car and your insurance company will make a settlement offer. If you accept the offer, you'll need to transfer your title to the insurance company and they will take possession of your car.
A typical insurance payout for a totalled car will be for its actual cash value (ACV). This is determined by factors such as the year, make, model, and mileage of the car.
