Understanding What Happens When Insurance Totals a Car

When your car is involved in an accident, one of the possible outcomes is that your insurance company may declare it a total loss, commonly known as “totaled”. This term can sound drastic and confusing, so in this comprehensive guide, we’ll walk you through what it means when insurance totals a car, how insurance companies make this determination, and what options you have afterward.

Our goal is to provide a clear, easy-to-understand explanation, sprinkled with examples to help illustrate the process.

What Does It Mean When Insurance Totals a Car?

A car is considered totaled when the cost to repair the vehicle exceeds a certain percentage of its value. This percentage varies by insurance company and state regulations but typically ranges from 65% to 75%.

In simpler terms, if your car is worth $10,000 and the repairs cost $7,000, your insurance company may declare it a total loss because the repair costs are 70% of the car’s total value.

READ MORE: What is a Deductible? Understanding Your Insurance Policy

How Do Insurance Companies Determine If a Car is Totaled?

The process typically involves several steps:

1. Assessment of Damage: After an accident, your vehicle will be inspected by an adjuster who assesses the damage.
2. Estimation of Repair Costs: The adjuster will estimate how much it would cost to restore the car to its pre-accident condition.
3. Evaluation of Car Value: The current market value of your car is determined, often using databases like Kelley Blue Book.
4. Comparison and Decision: The insurer compares the repair cost to the car’s value. If the repair costs exceed the set percentage of the car’s value, they will likely declare it a total loss.

Example:

Let’s say Emily’s 2015 Honda Civic, worth $12,000, incurs $9,000 in damages from a collision. The repair cost (75% of the car’s value) exceeds the 70% threshold set by her insurer, so the car is declared totaled.

What Happens After Your Car Is Totaled?

Once your insurer decides to total your car, several things can happen next:

• Payout: You will receive a cash payout based on the actual cash value (ACV) of your car just before the accident.
• Deductible: If you are filing a claim under your collision coverage, you’ll likely have to pay your deductible.
• Loan Balance: If you owe more on your car loan than the ACV payout, you might have to pay the difference unless you have gap insurance.

Salvage Title and Keeping Your Car

In some cases, you might choose to keep your totaled vehicle. If you do, the insurance company will still pay you the ACV of the car minus the salvage value (what the car is worth in its damaged state). Your car will then be issued a salvage title, meaning it cannot be driven until repairs are made and it passes a safety inspection.

Example:

John’s truck is totaled, and he receives a payout of $15,000. He decides to keep the truck, which has a salvage value of $5,000. Thus, John receives $10,000 from his insurance and retains ownership of the truck.

ALSO READ: Why Are Insurance Rates Skyrocketing? And the Rising Value of Brokers

Tips for Dealing With a Totaled Car

• Review Your Policy: Know your policy details, including your coverage limits and deductible.
• Understand the Valuation: Ensure the insurance company provides a fair valuation of your vehicle. Research its value independently to verify.
• Consider Gap Insurance: Especially if you are financing or leasing a car, gap insurance can be invaluable in covering the difference between the insurance payout and what you owe.
• Negotiate: You have the right to negotiate with your insurer on the payout amount, especially if you believe the valuation is lower than it should be.

Conclusion

Dealing with a totaled car can be a stressful experience, but understanding the process can make it more manageable. Remember, the key is knowing the value of your car, understanding your insurance coverage, and being prepared to negotiate if necessary. Stay informed and don’t hesitate to ask questions or seek professional advice to navigate the aftermath of your car being totaled effectively.

Understanding the dynamics of “when insurance totals a car” not only helps in making informed decisions but also in preparing for potential outcomes following an accident.

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