When Insurance Totals Your Car

Insurance companies total a vehicle when the cost of repairing the damage is higher than the vehicle's value at the time of the accident. This is also known as a total loss. After an accident, an appraiser will estimate the cost of repairs. If the cost of repairs plus the salvage value is more than the actual cash value of the vehicle, the insurance company will consider it a total loss.

When is a car considered a total loss?

A car is considered a total loss when the cost of repairing it exceeds its value, or when it is deemed unsafe to drive even after repairs. Insurance companies will typically complete an inspection of a damaged vehicle before officially declaring it a total loss.

In some states, a vehicle is automatically deemed a total loss if the cost to repair it exceeds a certain percentage of the vehicle's worth. For example, in Alabama, a vehicle is considered a total loss if the cost of repairs is greater than 75% of the car's value. However, insurance companies may choose to use a lower threshold.

When determining whether a car is a total loss, insurance companies will calculate the vehicle's actual cash value (ACV) immediately before the loss occurred and estimate the amount of damage. The ACV is calculated based on factors such as the car's make, year, mileage, and condition.

If a car is deemed a total loss, the insurance company will typically pay the owner the ACV of the vehicle, minus any applicable deductibles. If the car is leased or has a loan on it, the insurance company will pay the leasing company or lender first, and the remaining amount, if any, will go to the owner.

It is important to note that each state and insurance company may have different thresholds and procedures for declaring a vehicle a total loss.

How is total loss calculated?

The calculation of a total loss varies depending on the state in which you live and the insurance company's specific policies. However, the fundamental concept is that a total loss occurs when the cost of repairing a vehicle exceeds its worth. This worth is typically calculated using the vehicle's actual cash value (ACV), which factors in depreciation, mileage, condition, and market demand.

In some states, a vehicle is automatically deemed a total loss if the repair cost exceeds a certain percentage of the vehicle's ACV. This is known as the total loss threshold (TLT) method. Other states use the total loss formula (TLF) method, which evaluates the cost of repair and the vehicle's salvage value. If the sum of these two costs is higher than the ACV, the vehicle is considered a total loss.

When determining the ACV, insurance companies consider the vehicle's age, make, model, mileage, and condition. They also take into account the price that similar cars are selling for in the same area. This information is used to calculate the ACV, from which the depreciation value is subtracted to determine the total loss value.

It is worth noting that insurance companies may have their own methods for computing the ACV, and they might consider additional factors such as the vehicle's make and other factors.

The basic formula for calculating the ACV is:

ACV = Original purchase amount - Depreciation

Once a vehicle is deemed a total loss, the insurance company will reimburse the owner for the ACV of the vehicle, minus any applicable deductible.

What happens when an insurance company totals a car?

When an insurance company deems a car "totaled", it means that the cost of repairing the car is more than the car's actual cash value (ACV) at the time of the accident. The ACV is calculated by taking into account the vehicle's market value, make, model, year, mileage, and condition. If the cost of repairs exceeds a certain percentage of the car's ACV, the insurer will declare it a total loss. This threshold varies by state, insurance company, and circumstances of the loss.

Once a car is deemed a total loss, the insurance company will typically pay the owner the ACV of the vehicle, minus any deductible. If the owner still owes money on the car loan, the insurer will reimburse the lender first, and the owner will receive the remaining amount. If the owner has gap insurance, it will cover the difference between the ACV and the remaining loan amount.

The owner can choose to keep the totaled car, but the insurance company will deduct the "salvage" or "junk" value—the amount they could get from selling it for parts—from the ACV. Keeping a totaled car requires repairs, inspection, and reinsurance to get back on the road, and it may be difficult to find an insurance company willing to provide comprehensive or collision coverage for a vehicle with a salvage title.

If another driver is at fault in the accident, their insurance company will pay for the damages through their property damage liability coverage. If the at-fault driver is uninsured or underinsured, the owner's uninsured motorist coverage will kick in. Collision coverage will cover accident-related damage to the car, regardless of fault. Comprehensive coverage will cover damage not caused by a collision, such as fire, severe weather, or vandalism.

Can I buy back my totalled car?

Whether you can buy back your totalled car depends on your state's laws and the insurance company's policies. If your state permits it, your insurance company may allow you to buy back your totalled car, but you must inform them immediately of your intention to do so.

If you decide to buy back your totalled car, be prepared for a potentially lengthy and costly process. You will need to get repair estimates, determine the book value of your car, and contact your lender for the payoff amount, if applicable. Additionally, you will need to fulfil all the requirements set by your state's Department of Motor Vehicles, which may include inspections and obtaining a salvage or rebuilt title.

It is important to consider the potential downsides of buying back a totalled car. There may be hidden damage that increases repair costs, and the car's value will likely decrease due to its history as a total loss. This can affect your ability to sell the vehicle in the future and may impact your insurance options.

On the other hand, buying back a totalled car can have some advantages. If the damage is mostly cosmetic, the costs of keeping the car may be lower than buying a new one, especially if it is an older model. Sentimental value may also play a role in your decision.

Ultimately, the decision to buy back a totalled car depends on various factors, including the extent of the damage, the cost of repairs, and the regulations in your state. It is essential to carefully consider the pros and cons before making a decision.

What happens if my car is totalled and I'm not at fault?

If your car is totalled and you're not at fault, the first step is to file an insurance claim with the at-fault driver's insurance company. You should also file a claim under your own insurance policy and check if you have collision coverage subject to any deductible.

The documentation included in your insurance claim should be carefully assembled to ensure that you are fully compensated. This should include out-of-pocket expenses, an appraiser's report, and any medical bills. Modifications to your car, such as an improved stereo system or new tyres, might impact its actual cash value (ACV), so be sure to provide comprehensive information to support your claim for reimbursement.

The insurance adjuster will use this information, alongside a police report if available, to determine the vehicle's value before the accident. This number is then compared to the cost of repair. A total loss is declared when the cost of repair amounts to a percentage of the total value set by the insurer, which is constrained by and varies according to state laws.

Once a total loss is determined, the insurer must compensate you for the determined value of the vehicle prior to the accident. They won't replace your car or guarantee that the pre-accident value will be enough to purchase a replacement. In most situations, you cannot keep the wreck to sell or use for parts. By accepting a settlement payment, you agree that the insurer will take possession of the totalled car.

However, it may be possible to negotiate with the adjuster to keep your totalled vehicle. Ultimately, your claim results depend on whether you and/or the at-fault driver have comprehensive coverage or insurance that covers the nature of the damages relevant to your particular situation.

Several issues can arise when a car is totalled and you are not at fault. For example, an insurer's value estimate of the wrecked vehicle may seem too low. Following an offer by an insurance adjuster, you may send a reply with arguments and evidence for a higher estimate of the vehicle's value. This may result in an adjustment, but if the insurer is unwilling to value the vehicle properly, you may need to take legal action.

Another problem may arise if the totalled car was purchased with a loan, and the amount outstanding on the debt is greater than the insurer's estimated value. In this case, unless you have gap insurance coverage, you may find yourself paying for a car that was totalled through no fault of your own. Unfortunately, the car's destruction doesn't alter the loan agreement, so your only recourse may be to argue for a higher value on the vehicle.

Frequently asked questions