Understanding Total Loss Claims And Payouts From Auto Insurance

If your car is totalled, or deemed a total loss, by your insurance company, it means that the cost of repairing the damage is greater than the value of the vehicle. In this case, your insurer will pay out the car's actual cash value (ACV) – the resale price of your vehicle before it was involved in a major accident – minus your deductible. If you disagree with the settlement amount, you can appeal and try to get more money for your car.

Collision coverage

If your vehicle is totalled, collision coverage will pay for the repairs or the total loss of your vehicle. However, you will need to pay your deductible first, after which your coverage will pay the remaining cost. The deductible is the amount you agree to pay out-of-pocket after a covered loss, usually a set dollar amount. For example, if the ACV of your totalled car is $5,000 and your deductible is $1,000, your insurer will pay out $4,000.

If you are at fault for the accident, your liability coverage will pay other people for their injuries and damage to their property, but you will have to rely on your collision coverage to pay for your totalled car. Collision coverage is optional and not required by any state. However, if you lease or finance your vehicle, the financial company will usually require you to carry collision coverage until the car is paid off or turned in.

If you own your car, there are a few reasons why you might want to drop your collision coverage. If your car is worth less than a few thousand dollars, or if you have a high deductible, collision coverage may not be worth the cost. Additionally, if you are not currently driving your car, you may not need collision coverage, although it can still protect your vehicle against theft, vandalism, fire, and weather-related issues if it's parked in a garage or storage.

The cost of collision coverage depends on factors such as your driving record, the vehicle you're insuring, and where you live. On average, drivers pay $687 per year for collision coverage.

Comprehensive coverage

It's important to note that comprehensive coverage does not cover damage to your car caused by a collision with another vehicle or object. Additionally, it does not cover personal belongings inside your car or damage from potholes.

When purchasing comprehensive coverage, you will need to decide on a deductible amount. The deductible is the amount you will have to pay out of pocket before your insurance company covers the remaining costs. A higher deductible will result in lower insurance costs, but you will have to pay more if you need to make a claim.

If your car is leased or financed, your lender will likely require you to have comprehensive coverage. This ensures that they can recoup their investment if the car is damaged or destroyed.

Deductibles and fees

When your car is totaled, your insurance company will pay you the vehicle's fair market value or actual cash value (ACV) minus your deductible and any other fees. The ACV is the resale price of your vehicle before it was involved in a major accident.

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. If you have a deductible, other insurance fees, or a loan balance on the car, these expenses will come out of that fair market value determined before you get your payout.

Your insurance company will also subtract your deductible from the amount they pay out for your totaled vehicle. If you have a $500 deductible and your car is worth $5,000, the auto insurance company would pay you $4,500.

If you have a car loan or lease, your lender or leasing company will likely require you to carry collision and comprehensive coverage. If your car is totaled due to a problem covered by your policy and you owe more on your car loan or lease than the settlement amount, gap insurance will cover the "gap" between the two.

Actual cash value (ACV)

When a car is involved in an accident, the insurance company will determine whether it is a total loss. This means that the cost to repair the damage exceeds the vehicle's book value at the time of the crash. If the insurer totals your car, they will pay out the ACV. This is the amount your car could have been reasonably sold for before the accident, minus your deductible.

The ACV of a car is negotiable. If you disagree with the insurance company's valuation, you can negotiate a higher payout. However, you will need evidence to support your claim. You can refer to resources like Kelley Blue Book to find depreciation estimates and double-check the insurer's valuation. It is also important to provide as many details as possible about your specific car to ensure an accurate estimate.

It is worth noting that ACV is different from replacement cost. Replacement cost refers to the amount required to replace an insured item with a new one of similar kind and quality. In the case of a totalled car, the insurance company will typically pay the ACV of the vehicle, not the replacement cost of a new car.

Gap insurance

When a car is involved in an accident, the insurance company will "total" it when the cost to repair the damage exceeds the vehicle's book value at the time of the crash. This is a function of basic math and the regulations in your particular state. Each state sets its threshold for declaring vehicles a total loss, but carriers may choose to use a lower threshold.

If your car is "totalled", standard auto insurance will only pay an amount up to the value of your vehicle. This is where Guaranteed Asset Protection (GAP) insurance comes in. GAP insurance is an optional, add-on coverage that can help certain drivers cover the difference between the financed amount owed on their car and its actual cash value (ACV) in the event of a covered incident where their car is declared a total loss. GAP insurance is intended to cover the difference between the amount you owe on your auto loan and the amount the insurance company pays if your car is stolen or totalled.

For example, imagine your car is three years old and its actual cash value is only $20,000, but you still owe $25,000 in payments. Your collision insurance will not cover the gap, and you will be left with a financial burden. GAP insurance will pay the difference for you (minus your deductible).

The cost of GAP insurance varies depending on factors such as the current ACV of your car, the state you live in, and your previous car insurance claims. You can purchase GAP insurance independently or bundle it with your existing policy, which will usually save you money. It is important to compare prices and coverage before buying, and remember that once you owe less on your car than its ACV, you will no longer need GAP insurance.

Frequently asked questions