What Exactly Is a Totaled Car?
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A serious car crash can significantly tear your life apart. These accidents not only cause long-term physical and emotional injuries; they can also cause permanent damage to your car that can't be repaired. An insurance company may declare your car as a total loss if your vehicle has too much damage. They can also say it's totaled if it's too expensive to repair. A totaled car means that the car is not worth fixing.
In this article, we'll explain what it means when your car is totaled. You'll learn about the claims and settlement process and whether or not your insurer will pay for your damaged vehicle.
When Is a Car Considered a Total Loss?
Insurers consider a vehicle a total loss when the price to repair it exceeds its actual cash value. It means the insurance company won’t cover repairs that exceed the cash value of the car.
Most standard auto insurance policies don’t pay for repairs of totaled vehicles. The insurance company will determine what settlement it will pay to replace your car is a total loss.
How Do Insurance Companies Calculate a Total Loss?
Insurers use your car’s Actual Cash Value (or total worth) when the accident occurred to determine how much your vehicle is worth. They determine the ACV using your vehicle’s pre-collision value minus the deductible.
Insurers also use other factors to determine your vehicle’s Actual Cash Value, such as your automobile’s make, model, year, mileage, and maintenance records. They also study maintenance records to evaluate your vehicle’s mechanical condition and resale value at the time of the accident.
Your car’s Salvage Value is another metric that insurance companies use to calculate your vehicle’s worth. It is the resale value of your automobile’s metal parts. Insurance companies consider an automobile a total loss when it's Salvage Value does not exceed the Actual Cash Value.
The insurance adjuster may also include your car’s Cost of Repair, which is the price to get your vehicle working again. The professional will estimate whether it’s higher or lower than its Actual Cash Value. If it’s combined with the salvage value and turns out to be more than its Actual Cash Value, the insurance company considers the car a total loss.
How Do Different Areas Define Vehicles as a Total Loss?
The insurance company will also compare your car with similar vehicles within your area to calculate its current market. Each state has established a different legal threshold to define a totaled vehicle. Some locations use the Total Loss Threshold (TLT). Under this formula, the damage only needs to exceed a certain percentage of the vehicle’s value for the insurer to declare it a total loss. States that use the TLT include:
- Alabama (75 percent)
- Arkansas (70 percent)
- Colorado (100 percent)
- Florida (80 percent)
- Indiana (70 percent)
- Iowa (75 percent)
- Kansas (75 percent)
- Kentucky (75 percent)
- Maine (75 percent)
- Massachusetts (75 percent)
- Michigan (70 percent)
- Mississippi (80 percent)
- Montana (75 percent)
- Nebraska (65 percent)
- Nevada (50 percent)
- New Hampshire (75 percent)
- New York (75 percent)
- North Carolina (75 percent)
- North Dakota (75 percent)
- Oklahoma (60 percent)
- Oregon (80 percent)
- South Carolina (75 percent)
- Tennessee (75 percent)
- Texas (100 percent)
- Virginia (75 percent)
- West Virginia (75 percent)
- Wisconsin (70 percent)
- Wyoming (75 percent)
Other states use the Total Loss Formula (TLF). Under this formula, your insurer will determine whether the sum of the repair costs plus your vehicle’s salvage value exceeds its Actual Cash Value. If so, they declare your vehicle a total loss. States that use the TLT formula include:
- New Jersey
- New Mexico
- Rhode Island
- South Dakota
An insurance adjuster determines the cost to repair damages to your car. They decide whether the repairs exceed the vehicle’s Actual Cash Value.
Does Insurance Coverage Pay for Total Loss Claims?
There are three insurance coverages that can reimburse you for a total loss: comprehensive, collision insurance, and property damage liability (PD) insurance.
Collision insurance reimburses you for repairs after your car is damaged in an accident with another car or object. It will also pay you for the replacement value of your automobile. Although it’s optional coverage, it’s required by lenders when people finance or lease their vehicles. It also covers single-car accidents, when a car rolls or falls over. Your collision coverage is the easiest way to receive payment for a total loss. It doesn’t matter who was at fault under this insurance as long as it is a covered loss.
Comprehensive coverage pays to repair or replace your vehicle when it’s damaged or stolen in an incident that’s not a collision. Insurers sometimes call this coverage “other than collision” insurance. These policies protect drivers from situations like natural disasters (storms, floods), falling objects, vandalism, and fires. Finance companies require this insurance when you lease your car. If you own your car, it’s optional insurance coverage.
Property damage (PD) liability comes with most car insurance policies. It pays for damages you cause to someone’s car or property. PD does not cover repairs to your own vehicle.
All states mandate PD coverage.
Get Independent Estimates for Your Car’s Actual Cash Value
The Insurance Information Institute recommends that car owners independently verify their car’s actual cash value instead of trusting the insurer’s estimate. The insurance company has the motivation to pay you the lowest settlement possible. You'll know if their offer is fair if you know the Actual Cash Value of your vehicle.
There are several guides you can use to determine the actual cash value of your vehicle. These publications include Kelley Blue Book, Edmunds, and the National Association of Automobile Dealers’ NADA Guides. If you don’t think the insurance adjuster has given you a fair appraisal, you can also get an assessment from an auto shop that's unaffiliated with the insurance company. Additionally, you can get a quote in writing from a car dealer to help with your insurance claim when the adjuster works on the estimate.
What Is the Claims Process?
Most insurance companies follow a similar claims process for users who get into a car accident. It involves the following steps:
Contact the insurance agent to start an insurance claim
The insurance company inspects the policyholder's car to see whether it is a total loss based on the cost of car repairs.
The insurer will issue a payment for the actual cash value of your totaled car minus the deductible on the comprehensive and collision coverage.
According to the Insurance Information Institute, there are several things that you should remember when you file a claim with your insurance company. The insurer will ask you to speak with a claims adjuster. This professional will verify your vehicle’s damages and determine how much it will cost to repair your vehicle.
The adjuster’s estimate is only a benchmark that doesn’t represent your final settlement. Never allow an adjuster to pressure you into a settlement. You don’t have to accept their estimate until you find out from independent sources what it will cost to cover the repairs.
The insurer will ask you to get one estimate. They will ask to make a comparison to determine the cost of repairs. You can ask for an estimate from a mechanic, garage, or car dealership.
Some insurers may choose to pay the lowest bid amount. Although you want to ensure your settlement covers your vehicle’s repairs or replacement costs, most insurance companies will pay the lowest price possible. They use "betterment" to avoid paying out high settlements. It occurs when a mechanic replaces old parts with new ones. The insurance company may claim the new parts increase the value of the vehicle. Therefore, they will reduce your claim by the difference between the used part and the new one.
Your insurance company can’t demand that you get repairs done at a specific shop. They can ask you to get several estimates if they believe the estimate you received was too high.
What if I Don’t Agree that My Car Is a Total Loss?
You don’t have to accept the offer from the insurance adjuster if it doesn’t seem fair or doesn’t match the estimates you received. It’s within your power to decline their figure and ask for a settlement. You can negotiate with the insurance company before considering legal action. Most insurers don’t want to bring these matters to court. Before entering negotiations, have the desired settlement and minimum settlement in mind. You can base your highest and lowest estimates upon the research you’ve done. When negotiating, ask the insurance adjuster the reasons they offered this settlement. After listening to them, you can make a counter offer.
The Insurance Information Institute states you can boost your settlement. For instance, the individual parts may be worth more than the book value. To prove this, you must submit evidence to verify its value, such as an affidavit from a mechanic who can prove the car’s parts are worth more than the current book value. Additionally, you can provide your vehicle’s service history, mileage, and other documentation to support your case.
You can also find out how much your car is worth using an Actual Cash Value Calculator.
What Is the Auto Insurance Settlement Process?
The insurer will pay you a settlement based on the actual value of your car now. After you receive your settlement, you can start shopping for a new car. Did you use a loan to purchase your car? Unfortunately, the settlement you receive may not cover the entire amount you borrowed. For instance, a person may take out a $25,000 loan to pay for a hybrid vehicle, but its value has depreciated to $20,000. Your insurance company would reimburse you $20,000 for the actual cash value for your car. You would pay this amount to the lender plus the outstanding $5,000. Having GAP coverage can protect you from having to paying your lender for this loan out-of-pocket. Speak with your lender. Find out whether you can make an agreement about the settlement and the remaining amount you owe. The insurer will make the claim check payable to you and your lender if your car is totaled. Speak with your lender to find out how to release the money. We’ll speak more about GAP coverage in the next section.
Will I Still Have to Pay Off My Loan if My Car is a Total Loss?
The answer is yes. There is a chance the settlement you receive won’t cover the full amount that you owe. If this occurs, you will owe the remaining balance unless you have a Guaranteed Auto Protection (GAP) insurance policy. GAP insurance can protect you from the financial loss of a totaled car. It is optional coverage. It will cover the financial gap between your vehicle's Actual Cash Value and the remaining loan amount when it is totaled. One thing you should keep in mind is this coverage is only available for auto loans. You cannot buy this coverage when using another type of financing (home equity) to buy a vehicle. It also doesn’t pay for other items such as late payment penalties, fees, loan rollover balances, extended warranties, and credit life insurance. You can purchase GAP insurance through an insurance agent or a local car dealership. It is optional coverage. If f you buy it through an insurance company, you can buy it as a standalone policy or part of a package. Although GAP policies are expensive, you can use SmartFinancial’s app to shop around for the best rate.
Do I Have to Pay a Deductible if My Car Was Totaled?
Yes, you will still have to pay your deductible, even if your car was totaled. A deductible is an amount that policyholders will have to pay out-of-pocket before the insurance company pays any expenses. Most deductibles are a specific dollar amount. Others are listed as percentages on policies. Once you pay off your deductible, your insurance coverage will kick in, and the insurer will pay the rest of your claim up to the limits listed in the policy’s conditions.
It Wasn’t My Fault that My Car Was Totaled. What Should I Do?
Sometimes, a car may be totaled because of circumstances beyond your control. For instance, a flood can ruin your car's engine, or a tree can fall onto your car, totaling it. If this occurs, you can depend on your comprehensive coverage for this damage. The insurance will reimburse you for your vehicle's Actual Cash Value (minus the deductible you owe). If another driver crashed into your car, their liability coverage would pay for repairs. Your insurance company may seek repayment from the other driver to cover the loss. In a few cases, the insurance company may reimburse you for the deductible they subtracted from any insurance payout.
Can I Buy My Totaled Car Back?
Some insurance companies will allow you to buy back totaled vehicles if you want to make repairs. You can contact your insurance agent to find out the process to repurchase your vehicle. Unfortunately, you may have to pay for the repairs out of pocket. Once you meet your deductible, you’ll receive the vehicle’s actual cash value. If you still owe money on your loan, you must pay off the balance before the lender transfers the title.
Before the worst happens, consider whether your auto insurance policy will provide you with enough protection if your car is a total loss. You can make a change if you’re not satisfied with your current coverage. You can shop for a new policy using SmartFinancial. Once you complete our quick form, and we’ll provide you with quotes and coverages from insurance companies within your area. You can find the best insurance coverage that fits your budget. It’s smart, easy, and simple. Fill out the form below to get started.