If an accident or incident damages your vehicle enough, your insurance provider may declare it a total loss.
As you might expect, there are some insurance implications to totaling a vehicle. There are other impacts to consider, too.
Keep reading to learn about what happens when an insurance company totals your car. In particular, you will find answers to these and other questions related to totaled cars:
- What is a totaled vehicle?
- How do you know if your car is totaled?
- How much does insurance pay for a totaled car?
- What can I do if I disagree with my insurance company’s decision to total my car?
What does it mean when a car is totaled?
A car is totaled when the cost to repair damage is higher than the car’s value, generally speaking. A car also might be totaled if it’s damaged and can’t be repaired, or if damage makes it unable to be driven or unsafe to drive.
Some state laws define when a vehicle is totaled. For example, New York state law says that a car is totaled when an estimate to repair damage exceeds 75% of a car’s value. In Texas, that “total-loss threshold” is 100% of a car’s value, while in Iowa, it’s 50%.
In states without this type of threshold, insurance companies use other formulas to determine if a car is a total loss or not.
Is my car totaled?
Your insurance provider will tell you if your car is totaled or not. If you’d like to get a sense for what your insurer might say in this situation, answer these questions:
- Can you drive the vehicle?
- How much will it cost you to repair the vehicle?
If your car won’t start, and especially if it won’t drive, it’s more likely that your insurer may declare it totaled.
And if a mechanic or similar specialist estimates repair costs to be higher than the Kelley Blue Book value of your car, it’s also more likely to be a total loss.
Is my car totaled if the airbags go off?
It's a popular misconception that a car is automatically totaled if its airbags deploy. This is because it is expensive to replace airbags. The process involves replacing the airbags themselves, and also the sensors and system that operate them.
It costs between $1,000 and $6,000 to replace car airbags, according to various sources. If you have an older car and its airbags deploy, your insurance company will probably decide it’s totaled.
But if you have a newer car, or if your car is worth a lot of money (such as if it’s a classic or collector car), your insurer may decide it’s cheaper to replace its airbags than it is to treat it like a total loss. This is especially the case if the accident or incident that caused the airbags to go off was minor and didn’t cause much damage otherwise.
How does an insurance company decide that a car is totaled?
Insurance companies usually decide a car is totaled after comparing the car’s value to its estimated repair costs. If the cost to repair a damaged car approaches or exceeds its value, an insurer is likely to declare it a total loss.
That’s just the gist of what goes into an insurance company deciding to total a car, though. Here’s a deeper look at the steps insurers typically take when totaling cars.
Calculate your vehicle’s value
Insurers use actual cash value (ACV), also known as fair market value, during this step of the process. This number is essentially the amount your car was worth before the accident or incident occurred. To put it another way, it's your car’s replacement cost, minus depreciation. As an example, here's how GEICO determines a car's ACV:
- Assess recent sale prices of similar vehicles in your area.
- Account for mileage and existing damage.
- Consider vehicle options and add-ons.
GEICO and other insurers also use their own valuation software during this step of the process.
Calculate the cost to repair your damaged vehicle
First, your insurance company will connect you with a claims adjuster. They will then assess the damage to your vehicle and estimate the repair costs.
Much like how insurers use software to determine a vehicle’s value, they use software to determine repair costs, too. One common example, Mitchell, provides them with extensive information on parts and labor costs for thousands of cars.
After the insurer establishes the value of your car and the cost of needed repairs, it's time to decide if the car is totaled. These are the two most common methods used to determine if a car is totaled:
Insurers automatically declare a car totaled if the damage or repair costs exceed a set percentage of the car’s ACV. That percentage, known as the total-loss threshold, is usually dictated by state law.
In many states, the total-loss threshold is 75%, which is sometimes referred to as the ¾ ratio. For example, let's say your car is worth $20,000. If the cost to repair the damages is $15,000 or higher, your car is totaled. If the damages are less than 75% of the car's market value, it's reparable.
The 75% rule isn't a guarantee. Each state has different laws and requirements. In Texas, the total-loss threshold is 100%. That means the repair cost must meet or exceed the car's ACV to be totaled.
In states with no total-loss threshold, like Arizona, insurance companies use their own equations or formulas to determine if a car is totaled. This is the basic total-loss formula (TLF in the table below): cost of repair + salvage value > actual cash value.
So, if the cost to repair the car plus its salvage value is greater than the car's initial market value, it's usually a total loss.
Your insurance company totaled your car. Now what?
There’s more to an insurance company totaling a car than the insurer calculating repair costs and actual cash values. Here are some other things to consider while you wait to find out if your car is a total loss or not.
Who is at fault?
If an accident damaged your car, did you cause the crash or is another driver at fault? The answer to this question determines if your insurer or someone else's insurer handles the payout. Negotiating with another person's insurance provider can be difficult. Regardless, the insurer will assess the damage and make a settlement or payout offer. You will need to do your due diligence. Don't accept any payout without first checking the insurer's math to make sure you're getting a fair offer.
Are you covered?
If you're at fault for the accident, hopefully you have more than state-minimum insurance coverage. State-minimum car insurance doesn’t include collision coverage. Collision coverage pays for damage to your car. If you cause an accident and you don't have collision coverage, you're responsible for the cost of repairing your car.
Is your car paid off?
Hopefully you have full ownership of the damaged car, too. If you still owe money on it, you might find yourself in a tough situation. Insurance companies pay the market value of a car in this situation. Let's say you bought a $20,000 car on a loan. A year later, its resale value is $15,000 — but you still owe $17,500 on the loan. If your car is totaled, your insurer will cut you a check for $15,000. You owe the lender $2,500, and you no longer have a car. This is why gap insurance exists and can be a good purchase for people with new or expensive vehicles. Gap insurance covers the difference between what you owe on a vehicle and what it's worth.
What happens to the totaled car?
If you accept the claim settlement offer, the insurance company takes ownership of your car. This is because they’ve basically purchased the car from you with their settlement. The car is usually sold to a salvage yard, where it is then auctioned, scrapped or repaired.
Can you keep your car if it's totaled?
You can buy back your totaled car from the insurance company. If you decide to keep your totaled car, the insurance company will deduct the salvage value from the payout. The salvage value is the amount that a scrap yard will pay for the vehicle.
What does insurance pay when a car is totaled?
How and how much your insurance pays for a totaled car depends on a few factors, including the company and the state you call home.
For example, these are the reimbursement options for a totaled car in Washington State:
- Replace your car with an available and comparable vehicle.
- Offer you a cash settlement based on the actual cash value of comparable cars in your area.
- Offer you a cash settlement based on alternate appraisal methods, like Kelley Blue Book.
How to fight an insurance company on a totaled car
Here's how you can fight your car insurance company on a totaled car if you disagree with their findings or payout.
You don’t have to accept your insurance company’s first settlement offer. If you think it’s too low or otherwise disagree with it, negotiate the value of your car with your insurer.
Ask for more information
Consider asking your insurance company for a total-loss report. This document outlines the estimated damages, your car's market value and comparable auto data.
Do the math
Once you have the total-loss report from your insurer, double check their math. Did they give your car a fair market value? Is the damage estimate accurate? You can use a valuation tool like Kelley Blue Book to gauge their findings.
It's important to find out just how much the car repairs will cost. If you can, get at least one estimate from a reputable body shop in your area. Compare it to the insurance company's report.
Hire an appraiser
If you think your insurance company is way off the mark with their payout, think about hiring an appraiser. This should be a last-ditch effort, though, as appraisers aren't free.
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