What to Do If Your Car is Totaled
We all know someone who got into an accident, had a dented bumper, and then found out their vehicle was declared “totaled.” What does it mean when a car is totaled? Could it happen to you?
How a Total Loss is Determined
If you get into an accident and the insurance company tells you that your vehicle is a total loss, this typically means that it’s damaged beyond repair. You can often tell just by looking at it after the accident. But this isn’t always the case. There are multiple factors that are used by insurance companies to declare your vehicle totaled.
Actual Cash Value vs. the Cost of Repairs
Your insurance adjuster will determine the actual cash value (ACV) of your vehicle by considering the condition of your vehicle, mileage, age, and other factors and using resources like the National Automobile Dealer Association or Kelly Blue Book to figure out it’s value. If the ACV is lower than the cost of repairs or the costs are a percentage of the value, usually around 70 to 75 percent, a total loss is declared. Your car may still be worth $10,000 but if it costs $7,500 to repair, it doesn’t make financial sense - it’s better to buy another car.
Insurance companies want safe cars on the road. It’s possible that the damage done to your vehicle means that bringing it back up to safety standards is either impossible or not cost effective to do. Whether it’s cost effective or not is determined by the ACV and the estimates received by the repair company.
While we tend to think of totaled cars being older - which explains why what seems like a small dent could make it a “total loss” - newer cars can be totaled for all the same reasons.
What Happens When Your Vehicle is Totaled
What happens next depends on what happened in the accident and what kind of insurance you have. If the accident wasn’t your fault and the other driver has insurance, you should be able to expect payment without too much hassle. If you were at fault, your payment will be determined, in part, by what deductible you owe. It’s important to know that if it’s determined you were partially at fault, that can affect the amount you receive as well.
- Your insurance adjuster will declare the vehicle totaled and let you know what amount you can expect back.
- The ownership of the vehicle will be transferred from you to the insurance company. This allows them to dispose of the vehicle properly. Make sure to keep your insurance coverage on the vehicle until it’s no longer yours.
- You will get paid the ACV minus your deductible and fees. For example, if the payout is around $10,000, and you have a $500 deductible, you’ll receive $9,500.
If you have a loan on the car, the bank receives the payment. You’ll either get the amount left over or a bill for the remaining loan balance. If you own your car, you’ll receive the payment.
What if You Want to Keep Your Car?
You may love your car or have a sentimental attachment to it. That’s understandable, but keeping it once it’s been totaled doesn’t always make sense. In some cases, you’re not allowed to do it by state law. But if you can, here’s what happens.
- The insurance company will determine the fair market value of your car, which isn’t the same as the ACV.
- Your payment will be the ACV minus the fair market value - so you receive a lower settlement.
- You’ll receive a salvage title for your vehicle. This means you can’t register it until you’ve made all the necessary repairs.
Keeping it sounds nice, but can become really expensive for most people.
What Kind of Insurance Coverage Do You Need?
The standard auto insurance policy only gets you so far when your vehicle has been totaled. Make sure you have the right kind of coverage to help you get through this without major expenses.
Collision Coverage: If you only have liability and the accident is your fault, you won’t receive anything for your car. Collision coverage is absolutely necessary.
GAP Coverage: When the value of your loan is higher than the value of your vehicle, only GAP insurance keeps you from owing the bank if your settlement won’t cover your auto loan balance.
Rental Coverage: Once your car is totaled, you’re going to need a rental car until you receive your payment. With rental coverage, some of the costs will be covered for you.
Knowing how the process works before you get into an accident that totals your car will save you a lot of stress and hassle if it happens to you.
Need to check your auto insurance coverage to make sure you have what you need? Contact us at Ross Insurance. We can make sure you’re completely covered.