What Happens When Your Car Is Totaled?

Whether it’s driving to work or picking the kids up from school, you depend on your car as a reliable means of transportation. However, even the most diligent driver is at risk of getting into an accident.

When the damage is severe and repair costs exceed the vehicle’s worth, your insurance company may “total” it, which can leave you stressed and unsure of what to do.

Don’t panic! We’ll walk you through some of the steps to take when your car is totaled and your options for handling this worst-case scenario.

What Is a Totaled Car?

A totaled vehicle is one that an insurance company has declared a total loss. It may be totaled because of high repair costs or irreparable damage after an accident, such as damage to your car’s circuit boards as a result of a flood or a bent frame sustained during a crash. Certain state regulations may also affect when an insurance provider deems a vehicle totaled.

In many cases, a vehicle is considered a total loss when the estimated cost of repairs is close to or more than the car’s actual cash value. Most states have an established threshold for repair costs. If repair costs exceed that limit, the car must be totaled out by the insurance company.

When Is a Car Considered Totaled?

In general, a vehicle that needs repairs totaling more than 70% of its actual cash value will be considered totaled. Actual cash value (ACV) refers to the vehicle’s worth before the accident.

Many states and insurance providers have cost thresholds that are lower than the car’s ACV. This is because it’s difficult to know the extent of the damage until repairs begin, which insurers and states take into consideration.

Alabama, for instance, has a threshold of 75% of the ACV. A car worth $12,000 is totaled if estimated repairs are $9,000 or greater. If your insurer has a totaled car threshold of 65%, they’ll total that vehicle if estimated repairs hit $7,800.

How Much Will Insurance Pay for a Totaled Car?

Most states will consider a car totaled when estimated repair costs equal 70% to 80% of the car’s worth prior to the accident. When a vehicle is totaled, most insurance providers will pay the ACV of a totaled vehicle.

Remember: actual cash value is the amount your car was worth before the accident, not the amount you paid for it when you bought it. Aspects like age, accident history, and mileage before the accident will affect your vehicle’s ACV.

What Types of Insurance Cover a Totaled Car?

Fortunately, there are several types of insurance that can help cover a totaled vehicle and pay its ACV, depending on the circumstances and your individual coverage. They include:

• Collision: Collision insurance helps cover damage to your car caused by a collision with another vehicle or object (like a tree) or a rollover accident, even if you’re at fault.
• Comprehensive: Comprehensive insurance can help cover damage caused by non-collision incidents, such as theft, vandalism, natural disasters, or contact with animals, like deer.
• Underinsured/uninsured motorist: If you’re in an accident and the other driver has insufficient insurance coverage (or no coverage at all), your underinsured/uninsured motorist policy should help cover your vehicle if it’s totaled.
• Property damage liability insurance: When you get in an accident and the other driver is at fault, their property damage liability insurance should cover damage to your vehicle and pay its ACV if it’s totaled.

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What Happens if You Still Owe Money on a Totaled Car?

If you still owe money on your auto loan or lease when your car is totaled, your insurance company will usually pay them your car’s ACV directly. But what if that’s not enough to cover the entire debt?

Gap insurance, as its name suggests, helps cover the gap between what you owe on the vehicle and its ACV. Most vehicles lose 20% of their value in the first year of ownership, so this isn’t an uncommon situation.

For example, say you finance a new car with a $36,000 loan. Then, one year later, you get in a wreck that totals it. Due to depreciation, your car’s ACV is now only $28,800, but you still owe $30,000 on the loan. Sufficient gap insurance can help you pay the $1,200 difference.

Can You Keep Your Totaled Car?

Some states may allow you to keep your totaled vehicle, but it will have a junk or salvage title showing that it’s been totaled. If you want to drive the car legally again, it will need to be fully repaired and pass safety inspections according to state regulations. Then, you’ll receive a rebuilt title for it.

If your previously totaled vehicle is deemed safe and road legal, you’ll need to reinsure it before driving, which may be tricky. Because there may still be problems lurking in the vehicle, insurance providers may be hesitant to offer coverage beyond mandatory liability, opening you up to financial risk.

What Are the Steps to Filing an Insurance Claim if Your Car Is Totaled?

If you think your car may be totaled, the following steps should help you navigate the process of filing an insurance claim:
 

1. Call your independent insurance agent: When the wreck happens (and you are, hopefully, uninjured), your first order of business is to call the police to report the accident. While waiting for emergency responders, call your insurance agent to get directions on the next steps, specific information they need, and other key details.
    
2. Document the damage: If it’s safe to do so, take pictures of the scene of the accident, including damage to your car, damage to any other cars or objects involved, and positioning of the scene. This documentation will help your insurance company handle the claim.
    
3. Call a tow shop: After the police have taken an accident report, call a towing service to take your car to a mechanic for an official repair estimate, which you can later compare to the insurance company’s estimate.
   
4. File your claim: Gather documentation like photos from the scene, the police report, your car’s title and sales receipt, and any other items your agent requested. Then, file a claim with your insurance company. Methods may vary by provider, but they should walk you through it.
    
5. Research your vehicle’s value: Use resources like Kelley Blue Book or NADA Guides to estimate your car’s ACV, helping you get a better idea of what might be a fair payout if it’s totaled. You’ll need your car’s make, model, mileage, and similar information to get an accurate quote.
    
6. Check your debt: If you leased or financed your vehicle, check how much is still owed on the contract or loan. This should help you determine if your payout and gap insurance (if you have it) might be enough to cover it.

Now, you should have an idea of what your financial standing will be once the claim is settled. With this in mind, you can start looking for a new car.

How to Fight an Insurance Company over a Totaled Car's Value

If your insurance company’s ACV estimate doesn’t match your research, you may want to submit a counteroffer. Here’s how:
 

1. Get an independent appraisal: Hire a professional to provide an appraisal of your car’s ACV.
2. Document the book value: Use Kelley Blue Book or NADA Guides to document your car’s ACV.
3. Check real prices: Document the current selling prices of similar vehicles in your area.
4. Make your counteroffer: Send in your counteroffer with the supporting documentation.
    

If your insurance company refuses to negotiate but you’re confident they aren’t offering a fair price, you can file a complaint with your state’s insurance department. You could also hire a lawyer and file suit against the insurer.

Getting the Right Insurance for Any Situation

Accidents can happen to anyone, but the right auto insurance can help make sure you’re prepared if your car gets totaled.

The independent insurance agents at Trusted Choice will take the time to understand your needs and find the right coverage for you. Connect with an independent insurance agent today to get started.