Accidents happen. A driver is late to pick up their daughter from daycare, runs a stop sign, and crashes into your car. A storm sweeps through town, uprooting the tree in your front yard, which lands on top of your car. Then boom, your vehicle is totaled.
If you have auto insurance, you’d probably expect your insurer to cover the damage. Luckily, they will if the repairs cost less than what the car is worth. But if they will cost more to repair than what it’s worth, the insurer will declare the vehicle a total loss. The company will then reimburse you for the actual cash value of the car — not the total cost of the repairs.
Here’s how it works.
Insurance companies “total” a car when the cost to repair the damage exceeds the vehicle’s market value. They may also declare it a total loss if it would be unsafe to drive even if you fix it. If the insurer totals your car, they will pay you the vehicle’s actual cash value (ACV). The actual cash value is how much it was worth just before the loss. It includes a reduction in value for depreciation, so the ACV will be less than what you paid for the vehicle, even if it’s relatively new.
It depends on the insurance company and where you live. Each state sets the threshold for declaring vehicles a total loss — but carriers may choose to use a lower threshold. In many cases, the insurance company will total a car even if the repair costs are less than the vehicle’s actual cash value — sometimes a lot less. That’s because it can be difficult to determine the full extent of the damage before repairs begin.
For example, in Arizona, the state threshold for totaling a car is 70% of its ACV. Let’s say you have a vehicle that’s worth $10,000. Under state law, the insurer must declare it a total loss if the cost of the damage is $7,000 or more. But if the insurer’s threshold is 60% of the ACV, it will be totaled when repair costs are $6,000 or more.
“The reason that some carriers [use a lower threshold] is because when you’re adjusting a vehicle, and you’re looking at it after a loss, it’s still together. And all you can see, for the most part, is the exterior of the vehicle and the undercarriage. When the body shop takes the vehicle apart and pulls the panels back, they typically find more damage,” said Josh Damico, vice president of insurance operations at Jerry, a car insurance comparison service.
If the body shop finds more damage after they begin the repairs, they file a supplement with the insurance company for the additional damage. “Some carriers have an idea of what supplements are going to look like on a damaged vehicle. They consider this upfront when determining when they will declare a vehicle a total loss,” he said.
The type of insurance coverage that kicks in if your car is totaled depends on the circumstances of the loss. Here are four kinds that might cover a total loss.
If you have a loan or lease, the lender will probably require you to maintain collision and comprehensive. Otherwise, these coverages are optional in every state.
You could skip them, but if you only have liability coverage to meet your state’s minimum insurance requirements, you’re putting yourself at risk. Liability coverage only pays for injuries and damage you cause to someone else. It won’t cover repairs to your vehicle if you’re at fault in an accident or have non-crash-related damage.
If you are looking for additional coverage, you can learn more about the most common types of car insurance.
If you have a loan or lease, you still have to pay your lender even if your car is totaled and you can no longer drive it. However, the insurance company will only pay the actual cash value of the car at the time of the loss. Since vehicles depreciate quickly, that may not be enough to pay off what you owe if you’re leasing or financing the purchase of your car — especially if you put little or no money down.
You’ll be responsible for making up the difference unless you have GAP coverage. GAP covers the difference between the amount you owe on your loan or lease and what the insurance company pays. Many policies even cover your collision or comprehensive deductible.
To determine whether a car is a total loss, the insurance company must calculate the vehicle’s actual cash value immediately before the loss occurred and estimate the amount of damage. Most insurers work with a third-party vendor that aggregates vehicle data to determine the ACV. The insurance company will then send an adjuster to inspect the damage and estimate the repair costs.
If the damage exceeds the threshold set by the state or insurance company for totaling a car, the insurer will declare it a total loss. If this happens, the carrier will reimburse you for the actual cash value of the vehicle.
Even if you get into a car crash and your vehicle is not completely totaled, your insurance company may still pay for your repairs.
You might be able to keep a totaled vehicle, but it depends on your state’s laws. “The best way to start this process is to talk to your carrier about purchasing the totaled vehicle back,” Damico said. If you can buy back the car, you’ll need to contact your local DMV to find out what forms you need to complete and the steps to take to start the purchase.
If you’re allowed to keep the car, you won’t be able to drive it right away. “Once a car is deemed a total loss, it has to be repaired, pass inspection, and ultimately you’ll be given a rebuilt or a salvaged title for the vehicle,” Damico said. You’ll need to provide the title and proof of inspection to the DMV to register the car so you can drive it on the road.
And don’t forget about insurance. You can’t legally drive without it in most states. However, you may be limited in the types of coverage the insurance company is willing to sell you. “Some insurance companies only insure salvaged, or rebuilt-titled vehicles for liability only. They wouldn’t cover it for comprehensive or collision coverage because it’s difficult to assess the current condition of the vehicle,” Damico said.
If you don’t plan on driving your totaled vehicle, you may also be able to:
You can’t. Insurance companies decide whether to total a vehicle based on what it’s worth and the extent of the damage. If the vehicle’s repair cost exceeds a certain percentage of its actual cash value, the insurer will declare it a total loss. If it doesn’t exceed the threshold, the insurer won’t total it.
It depends on the vehicle. When an insurance company totals a car, it pays the vehicle’s actual cash value immediately before the loss occurred. The ACV factors in depreciation, which includes wear and tear, mileage, and previous accidents, so the reimbursement amount will be less than what you paid for the car.
You can use the settlement money from the insurance company to help you buy a new vehicle. However, it won’t be enough to cover a new version of the same car you’re currently driving unless your insurance policy includes new car replacement coverage.
If you don’t think the insurance company’s payout is fair, you can dispute it. But the insurer isn’t just going to take your word for it that the car is worth more than their estimate. So, you’ll need to do some research. You can check sources like Kelley Blue Book and gather information about what similar cars are selling for in your area. Present the information to the adjuster and see if you can come to an agreement.
“If you can’t resolve it with the adjuster, you can go out and hire a private appraiser,” Damico said. But you’ll have to pay for it out of pocket. If the appraiser’s estimate is higher than what the insurance company offers, you can use it to negotiate. If not, you may have to accept the insurer’s offer.
If your car is totaled, there are a few steps to take to settle your claim and get back on the road.
