Vehicle Total Loss: Payout Expectations

If your car is damaged in an accident, your insurance company will decide whether to repair it or declare it a total loss. If the damage is severe and the vehicle can't be safely repaired, or if the cost of repairs exceeds the value of the car, your insurance company will total it. When a car is totalled, the insurance company will offer you a payout for the pre-accident value of the car. This payout is typically calculated based on the car's make, model, mileage, and pre-loss condition. You may have the option to keep your totalled car, but this will reduce your payout, and you will need to apply for a salvage title.

What is a total loss?

A total loss is when an insurance company declares a car to be damaged beyond repair and no longer drivable. This could be due to a car accident, natural disaster, or act of vandalism. A car is considered a total loss when the cost of repairing it is higher than the vehicle's value, or when the damage is severe and the car cannot be safely repaired.

The criteria for a total loss vary from state to state. Some states use a Total Loss Formula (TLF) that calculates the sum of the repair costs plus the vehicle's salvage value, while others use a simple percentage threshold, which can range from 60% to 100% of the car's value. If the repair costs exceed this threshold, the car is considered a total loss.

When a car is deemed a total loss, the insurance company will offer a settlement based on the car's actual cash value (ACV), which is the resale price of the vehicle before it was involved in an accident. The ACV is determined by factors such as the make and model of the vehicle, its pre-loss condition, mileage, and trim level. The insurance company will typically subtract the deductible from the settlement amount.

It is important to note that the insurance company will only provide a settlement if the policy includes the applicable type of coverage, such as collision or comprehensive insurance. If the car is leased or financed, the settlement will first go towards paying off the remaining balance, and any remaining amount will be given to the owner.

How is a total loss payout calculated?

When an insurance company declares a vehicle a total loss, they will pay out the pre-accident actual cash value (ACV) of the car. This is the resale price of the vehicle before it was involved in a major accident.

There is no clear-cut method for determining the value of a totalled vehicle. Insurance companies use various factors to determine the ACV, including the vehicle's:

• Year
• Make
• Model
• Mileage
• Trim level
• Options
• Pre-accident condition
• Physical wear and tear
• Damage caused in the accident

The ACV is calculated by subtracting depreciation from the cost to replace the car. Factors like mileage, condition, and market demand can influence depreciation.

If you owe money on the vehicle, the insurance company will pay the amount to your loan provider. If there is anything left, you get the rest. If you leased the car, the same thing applies.

What happens to a totalled car?

When a car is deemed a total loss, it is either auctioned off to a salvage yard or kept by the owner.

Auctioned to a Salvage Yard

If the car is not kept by the owner, it is typically auctioned off to a salvage yard, and the insurance company keeps the money from the sale. If the car is auctioned, the insurance company will get bids from different salvage companies and set the fair market value from these bids.

Kept by the Owner

If the owner is permitted by law to keep their totalled vehicle, the insurance company will deduct the amount they would have received from the salvage yard from the payout to the owner.

The owner will need to get a salvage title, which is a requirement in most states. This means that the owner cannot get license plates until they make the necessary repairs and apply for a new title. Cars with rebuilt titles are more difficult to insure, especially if the owner wants comprehensive or collision coverage.

Other Options

If the owner does not want to keep the car, they can:

• Sell it to a junkyard
• Trade it in at a dealership
• Donate it to charity

What if you still owe money on a totalled car?

If your car is totalled and you still owe money on it, you will be responsible for paying off the remaining balance of your loan. This is because the insurance company will only pay out the car's actual cash value (ACV) at the time of the accident, which may be less than the loan balance.

In this case, you have a few options:

• GAP insurance: This covers the difference between the ACV of your car and the amount you still owe on your loan. GAP insurance is good to have if you owe more for your car than it's worth. It is typically offered by your lender or insurance company.
• Keep your car: You can choose to keep your totalled car, but you will need to get a rebuilt title from your state's department of motor vehicles and insurance before you can legally drive it again. However, getting insurance for a car with a rebuilt title can be challenging, as some insurers don't cover rebuilt cars at all.
• Sell your car: You can try to sell your totalled car privately, to a junkyard, or to an online service. This can help you recoup some of the funds you lost and put them towards paying off your loan balance.
• Appeal the settlement: If you think the insurance company's payout is too low, you can appeal their settlement and try to get more money for your car.

It's important to note that if you total a leased car, you are still obligated to pay for the monthly installments on your totalled vehicle. Totaling a leased vehicle does not void the lease contract.

Can you negotiate a total loss payout?

Yes, you can negotiate a total loss payout. When your car is deemed a total loss, it means the insurance company has decided that the cost of repairing the damage is more than the value of the car. This can be due to severe damage, or even minor damage to an older vehicle.

If you feel that the insurance company's settlement offer is too low, you can negotiate for a higher amount. Here are some steps to follow:

• Determine the value of your vehicle: You can use sources like Kelley Blue Book, NADA guide, or Edmunds to find out the value of your car. Consider factors such as the year of manufacturing, mileage, and the value of similar vehicles for sale online.
• Gather documentation: Collect any maintenance records, oil change receipts, and regular maintenance documents to show that your car was in good condition before the accident.
• Organize your argument: Take pictures of the damage and provide examples of how the accident has impacted your daily life, such as childcare expenses, lost wages, or the need for domestic services.
• Negotiate with the insurance adjuster: Present your research and documentation to the insurance adjuster to support your argument for a higher settlement amount. Be polite and firm, and remember that you have the right to say no to an offer and ask for a better one without going to court.
• Hire an attorney (as a last resort): If negotiating with the insurance adjuster is unsuccessful, you may consider hiring an attorney to help you get a higher settlement. Keep in mind that this will incur additional costs, and there is no guarantee of a higher payout.

Remember, it is important to be well-informed and prepared when dealing with your insurance provider in the event of a total loss. Knowing the value of your car and understanding your insurance coverage will help you navigate the negotiation process effectively.

Frequently asked questions