Accidents can happen to even the best of drivers.
And while many accidents are minor, causing nothing more than a scratch or dent, sometimes an accident can be more serious. The accident might even lead to your car being “totaled”—a reality any driver tries to avoid.
Many assume that when your car is totaled, it means it’s now undrivable. While that can be the case, that definition isn’t quite right. A car is totaled when the cost of repairing the car exceeds the value of the car. For instance, if your car is worth $10,000 and the cost of repairing your car after an accident is $12,000, that car is now considered a “total loss.”
Once your car is totaled, it’s time to figure out a total loss settlement with your insurance company based on your coverage plan. It’s never an easy situation for a driver to total their car, but fortunately, a good car insurance company has the driver’s back in this difficult situation. That’s why it’s so important to find robust car insurance at a winning price point.
Who decides if your car is totaled?
Determining that your car is a total loss is never easy. Over the years, you likely build an attachment to your car, as it can be the site of countless memories and milestones. That’s why the process of figuring out if a car is a total loss is conducted carefully by insurance adjusters and takes into account several different factors.
Assessing the pre-accident value of your car
The first thing an insurance adjuster will do after your accident is determine the car’s pre-accident value or actual cash value (ACV). You might imagine this to be a simple process. After all, the car’s value is probably around the retail value you paid when you originally bought the car, right?
Unfortunately, your car depreciated right as you drove it off the lot. In the first year, a car will, on average, depreciate by about 20 percent in value then continue to depreciate by roughly 10 percent each year for the next few years. In just a few years, your car might be worth about half the value that it was when you first bought it.
Additionally, the market value of your car isn’t so easy to predict. After factoring in mileage and the make and model of your car, the insurance adjuster will research a database of car sales in your area. The demand for the vehicle in your area will play a factor in the value of the vehicle. For instance, there is more demand for pickup trucks in rural areas compared to urban areas.
What qualifies as a total loss can vary
Once the insurance adjuster has determined the value of your vehicle, they’ll then figure out the cost of repairs for your vehicle. If your ACV is $6,000 and the cost of repairs is $6,500, your car is definitely a total loss. But what you might not realize is that your car could also be considered totaled even if the cost of repairs is just $3,000.
In some cases, state laws will set total loss thresholds that determine whether a car is considered a total loss. In certain states, such as Iowa, a car that requires repairs that are 50 percent of the car’s actual cash value is deemed a “wrecked or salvage vehicle.” In other states, like Texas, the threshold is 100 percent. Other states might have a more complicated formula for deeming a car totaled.
Explore your options
Once your car is deemed totaled, your auto insurance company may give you a few options. Assuming you have comprehensive or collision coverage, your insurance pays you back the actual cash value of your car minus your deductible. Of course, it might not be that simple. You may still be paying off your car loan, which a car insurance company won’t pay for unless you have gap insurance. This special form of coverage pays off the balance due to the lender if you file a total loss claim.
If your car is brand new, your insurance company may give you a new car if you have the right coverage options. Additionally, there is the possibility of keeping your car and attempting to repair it yourself. While this isn’t the most common or easy option, it might work in certain cases.
You may also have replacement cost coverage. While this is a more expensive form of car insurance, it’s designed to help people fully replace their cars after they’re totaled. Because of depreciation, the cost of replacing your car is always going to be higher than the actual cash value payout you get from your car insurance provider. Replacement cost coverage solves this problem by covering your vehicle’s replacement cost rather than the actual cash value.
What If You Disagree with Your Claims Adjuster?
Say you get in a car accident that luckily causes no injuries and only some cosmetic damage to your vehicle. You contact your auto insurer and a few days later, your insurance adjuster calls you with some shocking news: your damaged vehicle is a total loss.
How can you be sure the insurance company is accurately determining the car value? And are they absolutely certain repair costs will be as high as they’re estimating? What if another body shop in town offers a better deal on repairs? These are all common questions after receiving this news, so it’s worth exploring your next steps if you disagree with your claims adjuster.
Is it time to get a second opinion?
You might find that your car insurance company is undervaluing your car. Now what? Well, it might be time to get an independent appraiser from a local body shop to take a look at your car. They’ll conduct a thorough inspection of your car and put their evaluations in writing. You can then send this report to your car insurance company if you feel it will change their mind about the vehicle’s value.
If you want to do some research on your own, you can also use Kelley Blue Book or NADA Guides. Both are online valuation platforms for new and used cars that make it easy for consumers to research their vehicles’ value. Using these resources can give you a rough idea of the value of your make and model and compare that against the actual cash value your car insurance company calculates.
Can you haggle?
You’ve sent an independent appraisal to your car insurance company, but they refuse to budge. Now you’re really starting to get frustrated. In this case, you might be able to get a representative from your state’s insurance regulation department involved. They can review the case and determine if your auto insurance company is grossly undervaluing the market value of the vehicle.
You could also choose to take up the matter in court if you decide you aren’t getting a fair shake from your car insurance company. But keep in mind that the legal fees could quickly add up and offset any difference you make up in the value of your vehicle.
If You Decide Not to Total Your Car
When you purchased car insurance, you likely filled out lots of paperwork. And amid all that fine print, you may have signed a clause that asserts that your car insurance company can’t give you a payout that exceeds the actual value of the car. This means your options are fairly limited if you want to keep your totaled car.
Luckily, if the news that your car has been totaled puts you in a difficult position financially, state laws indicate that a car insurance company must “make you whole” after an accident. To return you to the financial state you were in prior to your accident, the car insurance company will pay you the actual cash value of your car minus the deductible.
What if you want to repair your car yourself?
You might want to keep your totaled car if you’re planning on repairing it yourself by taking it to a body shop of your choice. If so, you will likely be able to work this out with your insurer, per the details of your policy and any relevant state laws. This might not always be the best decision, though, as car repair costs can add up quickly.
Additionally, you always want to make sure your car is safe to drive. If the DMV inspects the car and finds that it isn’t safe to drive, you might have a very hard time insuring the vehicle again after these repairs. Accepting that your car is a total loss vehicle and buying a new car is often the smart choice.
What about buying your totaled vehicle at an auction?
Once your vehicle is deemed a total loss, your insurance company will set up a payout for you and send your car to an auction, where it will be chopped up and its parts will be sold off. The car insurance company will likely keep any money they make at the auction. Unfortunately, as the previous owner of the vehicle, you likely won’t be able to attend the auction unless you have a permit that allows you to buy auto parts at auction.
Find the Right Insurance Company for You
It’s never easy filing an insurance claim, but a total loss claim can be particularly difficult. Aside from the emotions that come with giving up a car that you’ve maybe had for years, you also might find that the process can be drawn out and frustrating.