Insurance Options After Your Car Is Totaled

If your vehicle is damaged by another person, your insurance company will deem it totaled or a total loss when the cost to repair the car is more than your car's actual cash value (ACV) at the time of the accident. This means that the cost of repairing the damage exceeds the vehicle's book value at the time of the crash. If your car is financed, the insurance company will pay your lender first, and you will receive whatever money is left over. If you don't have a loan or lease, you will receive the settlement check directly.

What is a totalled car?

A "totalled" car, or a "total loss", is a car that is deemed to be beyond repair following an accident or some other form of damage. This can be because the cost of repairing the car exceeds its value, or because the car is unsafe to drive, even after repairs.

Each US state has its own threshold for declaring a vehicle a total loss, but insurance carriers may choose to use a lower threshold. For example, in Alabama, the state threshold for totalling a car is 75% or greater of its actual cash value (ACV). So, if a car is worth $10,000, 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 totalled when repair costs are $6,000 or more.

If an insurer totals a car, they will pay the owner the vehicle's ACV—that is, its market value at the time of the accident, minus depreciation. The ACV is calculated by looking at the going rate for similar cars in terms of model year, make, condition, and options.

What happens when insurance totals your car?

When an insurance company declares a car "totaled", it means that the cost of repairing the vehicle is greater than the actual cash value (ACV) of the vehicle. In other words, it would be more expensive to rehabilitate the damaged vehicle than it would be to purchase a replacement.

Each US state has different regulations that insurers must abide by when making estimations. Some states have laws that force insurance companies to consider a vehicle totaled if a certain amount of damage is done. For example, in Alabama, a vehicle is considered totaled if the damage costs $7,500 or more on a vehicle worth $10,000. In New Jersey, there is no specific threshold, but an insurance company will often total a vehicle if the appraised damages equal 80% of the vehicle's ACV.

If your vehicle is totaled, your insurance company will not repair it. Instead, they will likely offer you a settlement based on the vehicle's value, minus any applicable deductibles. You can then use this money as a down payment on a new car.

If you disagree with your insurance company's settlement offer, you may be able to negotiate for a better deal. You can do this by hiring an independent appraiser, doing your own research into the fair market value of your vehicle, and submitting a counteroffer. If the insurance company rejects your counteroffer, you can seek help from your state's insurance department.

You may also be able to keep your totaled car, depending on your state. If you choose to do this, the car will get a salvage title, and you will need to follow your state's guidelines for repairs. This typically involves repairing and restoring the car, followed by a state-approved inspection to confirm that the vehicle meets the state's safety requirements. If your car passes the inspection, you'll get a "rebuilt title". However, it may be difficult to get auto insurance for a rebuilt-title car, as insurance companies view these vehicles as a higher risk.

In summary, when an insurance company totals your car, they will offer you a settlement based on the vehicle's value, minus any deductibles. You can negotiate this settlement if you feel it is unfair, and you may also be able to keep the car, but it's important to understand the potential challenges and risks involved.

What happens if your car is totalled and you're not at fault?

If your car is totalled and you're not at fault, the first step is to file an insurance claim. You'll need to report the accident to your insurance company and file a claim with the at-fault driver's insurer. It's important to do this as soon as possible, as total loss claims can take a long time to process. You should also get your car damage inspected at an auto shop—ideally, one approved by the insurance adjuster handling your claim.

The at-fault driver's insurance company will then compensate you for the determined value of the vehicle prior to the accident. However, they won't replace your car or guarantee that the pre-accident value will be enough to purchase a new one. You may be able to negotiate with the adjuster to keep your totalled vehicle, but in most cases, the insurer will take possession of it and sell it to a scrap yard or repair and resell it as a salvage-titled vehicle.

If you disagree with the insurer's valuation of your car, you can dispute it by providing evidence that your car is worth more, such as documentation of upgrades, maintenance records, and current photographs. You can also hire your own appraiser and mechanic to assess the value and repair estimate. If you're still not satisfied, you can contact your local department of insurance or consult a lawyer about requesting arbitration or filing a lawsuit.

It's important to note that if you still owe money on a totalled vehicle, you'll need to continue making payments on your loan or lease until the insurance company issues payment to your lender. If the at-fault driver is uninsured or underinsured, you can use your uninsured motorist insurance (UIM) or collision coverage to file a claim.

What happens if you still owe money on a totalled car?

If your car is deemed a "total loss" or "totaled" after an accident, it means the insurance company believes the cost to repair the damage exceeds the vehicle's book value at the time of the crash. Each state has its own threshold for declaring a vehicle a total loss, but carriers may use a lower threshold.

If you still owe money on a car that has been totaled, you are generally still responsible for paying off any outstanding balances on your car loan. The insurance company will pay you the actual cash value (ACV) of the vehicle before the accident, minus your deductible. However, the ACV may be less than the total loan amount, leaving you with a balance to pay on a car you can no longer use.

To protect yourself from this financial risk, you can purchase Gap Insurance, which covers the difference between the ACV and the amount you owe on your loan. Gap Insurance is often required by lenders and is usually available from lenders and most car insurance companies. It may be relatively inexpensive and worth the extra cost.

If you choose to keep your totaled car, you will likely be able to sell it, but you will need to have it repaired, inspected, and reinsured to get the car back on the road. The "total loss" designation will be part of the vehicle's history, and you may have difficulty registering, insuring, and selling the car in the future.

What is gap insurance?

When you buy a new car, it starts to depreciate in value as soon as it leaves the car dealership. In fact, most cars lose 20% of their value within a year. Standard auto insurance policies cover the depreciated value of a car, meaning they pay the current market value of the vehicle at the time of a claim.

If you've financed the purchase of a new car and made only a small down payment, in the early years of ownership, the amount of the loan may exceed the market value of the vehicle. In the event of an accident in which your car is badly damaged or 'totalled', gap insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you actually owe on it.

Gap insurance is an optional product, but it's a good idea to consider buying it for your new car if:

• You made less than a 20% down payment
• You financed for 60 months or longer
• You leased the vehicle (carrying gap insurance is generally required for a lease)
• You purchased a vehicle that depreciates faster than the average
• You rolled over negative equity from an old car loan into the new loan

Your car dealer may offer to sell you gap insurance, but most car insurers also offer it and they typically charge less than the dealer. On most auto insurance policies, including gap insurance with collision and comprehensive coverage adds only about $20 a year to the annual premium.

Frequently asked questions