Insurance Write-Offs: What Happens When Your Car Is Totaled

If a vehicle is deemed a total loss by an insurance company, it means the cost of repairing the damage is more than the vehicle's book value at the time of the crash. Each US state has its own threshold for declaring a vehicle a total loss, but insurance carriers may use a lower threshold. When assessing a vehicle, insurers factor in the condition and structure of the car, as well as state laws. If the vehicle is financed or leased, the payout will go to the financer or leasing company, and the owner will be responsible for any remaining balance not covered.

Collision and comprehensive coverage

Collision Coverage

Collision coverage protects your vehicle in the event of an accident involving a collision with another vehicle or object. This includes accidents with other vehicles, regardless of fault, single-car rollovers, and accidents with stationary objects like road signs and guardrails. If you are at fault in an accident, collision coverage will pay for the damage to your vehicle after your deductible has been met. If another driver is at fault, their property damage liability coverage should cover the cost of repairs to your vehicle.

Comprehensive Coverage

Comprehensive coverage, on the other hand, protects your vehicle from non-collision incidents such as theft, vandalism, fire, weather damage, and animal damage. For example, if your car is damaged by a fallen tree or flood during a storm, comprehensive coverage will pay for the repairs minus your deductible. Comprehensive coverage also covers the actual cash value of your car if it is stolen and not recovered.

Choosing Your Coverage

When deciding whether to opt for collision and comprehensive coverage, consider the age and value of your vehicle. If your car is older and not worth a lot, you may not need this additional coverage as the potential payout may not be worth the premiums you'll pay. However, if you lease your vehicle or have taken out a loan to purchase it, your lender or leasing company will likely require you to carry both collision and comprehensive coverage. Additionally, if you live in an area with a high incidence of car theft, vandalism, severe weather, or animal collisions, this coverage may be worthwhile. Ultimately, the decision comes down to your budget and needs.

Calculating total loss

When a vehicle is deemed a total loss, it means the cost of repairing the damage is higher than the vehicle's value. This value is calculated based on the car's purchase cost, minus depreciation due to wear and tear, condition, and mileage.

To determine whether a car is a total loss, the insurance company must calculate the vehicle's actual cash value (ACV) immediately before the loss occurred and estimate the amount of damage. The ACV is how much the car was worth just before the accident, factoring in depreciation.

Appraisers will estimate the cost of repairs, including replacement parts, salvage value, and labour fees. They will then determine if the cost of repairs is higher than the car's value on the open market. If the cost of repairs exceeds the vehicle's value, the insurer will declare it a total loss.

In some states, a vehicle is automatically deemed a total loss if the repair cost exceeds a certain percentage of the vehicle's worth. For example, in Alabama, a vehicle is considered a total loss if the repair cost is 75% or more of its ACV. However, insurance companies may choose to use a lower threshold.

If a vehicle is declared a total loss, the insurance company will pay the owner the ACV of the vehicle, minus any applicable deductible. If the vehicle is leased or financed, the payout will first go to the lienholder, and any remaining amount will be paid to the owner.

Settlement and payout

When your insurance company deems your car a total loss, they will pay you a cash settlement. This is the actual cash value (ACV) of your vehicle, minus any applicable deductibles. The ACV is the car's purchase cost, minus depreciation based on wear and tear, condition, mileage, and more. It's how much the car is worth at the time of the loss, after the effects of time and use.

If you own your vehicle outright, you will receive the full settlement amount. However, if you still owe money on a loan or lease, the settlement will first go to the lienholder (the lender or leasing company) to pay off the remaining balance, and any remaining amount will be issued to you. For example, if your vehicle is worth $10,000, and you still owe $8,000 on your loan, your claims adjuster will pay $8,000 to your lender, and the remaining $2,000 will be issued to you.

If your car is deemed a total loss due to an accident that was not your fault, the at-fault driver's insurance company will usually pay you the value of your vehicle. If the at-fault driver is uninsured or underinsured, your uninsured/underinsured motorist coverage or collision coverage will kick in.

If you disagree with the insurance company's assessment of your vehicle's value, you can negotiate the payout. However, you will need to provide evidence as to why your car is worth more than what is being offered, such as an independent appraisal by a professional appraiser. If you are still unable to reach an agreement, you can file a complaint with the department in your state that regulates insurance companies, or hire an attorney and file a lawsuit against the insurer.

If you wish to keep your car, you may be able to negotiate a lower payout from the insurance company. In this case, the salvage value of the vehicle will be deducted from your settlement total. You will need to get the car repaired, pass a state inspection, and obtain a salvage or rebuilt title to be able to drive it again. Keep in mind that insuring a vehicle with a salvage or rebuilt title can be difficult, as some insurance companies will only provide liability coverage for these vehicles.

Keeping a totalled car

Firstly, a totalled car is one that would cost more to fix than it is worth or is deemed unrepairable. Insurance adjusters are the ones who determine whether a car is totalled, and they do so by assessing whether the cost of repairs plus the salvage value is greater than the car's actual cash value. The actual cash value (ACV) is how much a car was worth immediately prior to being damaged, taking into account factors such as age, make, model, and condition.

If you decide to keep your totalled car, the insurer will deduct the salvage value – what they would have gotten by selling your car to a junkyard – from what they pay you. This means you will receive the car's cash value minus any deductible due and the amount for which the car could have been sold to a salvage yard.

There may be a lot of red tape involved in getting your totalled car back on the road. Your car will probably be issued a "branded title", "salvage title" or "salvage certificate" until repairs are completed and inspected. The total loss will also be part of the car's vehicle history report, and totalled cars can be difficult to insure or sell later on.

Additionally, safety should be your primary concern when keeping a totalled car. If the damage to the vehicle is mostly cosmetic, you may be able to fix it and drive it again for a modest cost. However, if the damage is extensive, it may not be safe to drive the car, even after repairs. This is because all damages may not be visible, and once you start dismantling, you often find additional damage.

In conclusion, while it is possible to keep a totalled car, there are several factors to consider, including the cost of repairs, the potential difficulty in insuring or selling the vehicle in the future, and most importantly, the safety implications.

Gap insurance

When a vehicle is deemed a total loss by an insurance company, it means that the cost to repair the damage exceeds the vehicle's book value at the time of the crash. This is also known as the vehicle's actual cash value (ACV).

When a vehicle is totalled, the insurance company will reimburse the owner for the ACV of the car, minus any deductible. However, if the owner still owes money on the vehicle, they may be left with a gap between what the insurance company paid out and what they still owe. This is where gap insurance comes in.

For example, if an owner owes $25,000 on their loan and their car is only worth $20,000, gap insurance would cover the $5,000 gap, minus the deductible. Gap insurance can also help protect the owner from negative equity, which can occur when the owner has a longer financing term or has rolled over a loan from an old car.

The cost of gap insurance varies by insurer, but it is often relatively inexpensive and can be added to the owner's auto insurance policy. It is important to note that gap insurance does not cover other property or injuries resulting from an accident, nor does it cover engine failure or other repairs.

Frequently asked questions