A total car loss is what happens when the insurance carrier determines it costs more to repair the damage than to fix your vehicle. It’s not necessarily because of a serious accident; your car may be totaled because of a natural event, for example.
Even if no one got hurt, dealing with a totaled car is a stressful, sometimes downright scary, situation. But there are some steps you should expect when dealing with your insurance carrier, and knowing what to do in advance may ease the process for you.
The most important first step if your car is involved in an accident or event that causes significant damage to it is to contact your insurance company right away. At this point, you may not know for sure if your car is a total loss, but to get the process rolling you must contact your carrier sooner than later.
What Happens When Your Car Is Totaled?
A total car loss can occur in numerous situations. It could be the result of a collision with another car or an object like a tree, or an event that doesn’t involve a collision, such as a major hailstorm. No matter the circumstances, you have to work with an insurance adjuster to determine the next steps for your vehicle once you file a claim.
When the Insurance Company Determines Your Car Is a Total Loss
The insurance adjuster gets to work to determine the amount of damage to your car and the repairs needed to make it driveable.
“When the estimate reaches about 70% to 80% of the value of the vehicle, most likely it will be considered a total loss,” says P.J. Miller, partner and independent insurance agent with Wallace & Turner Insurance in Springfield, Ohio.
In some cases, you’ll actually want the insurance company to total the vehicle, says John Espenschied, owner of Insurance Brokers Group in Chesterfield, Missouri — the reason being that newer cars are safer, because they are designed to crumple but protect the passengers.
How Much Is a Totaled Car Insurance Payout?
Once the adjuster determines whether a car is totaled, the work begins to determine the payout. The payout is based on the fair market value, or Actual Cash Value (ACV). If you have collision and comprehensive coverage options on your auto policy, then your total loss is paid out at ACV minus your deductible.
ACV is simply a term for what was once called the “book value” of the car, Miller explains — or the value of your vehicle when accounting for the depreciation that all cars begin sustaining as soon as they leave the lot.
Don’t just take the insurance adjuster’s word for what a totaled car is worth. Do your research, and keep in mind that extra options like a moonroof can increase its value.
If you have New Car Replacement Coverage with your policy, you may think you’re 100% covered. But “your car can’t be older than one or two years to qualify for that replacement,” Miller warns, which further complicates how much money you receive for an insurance payout.
What Happens if You Owe More on Your Loan or Lease Than Insurance Pays Out?
“The insurance company wants to know if you have a loan or if the car is leased. Then they will want to know if it’s a loan, how much do you owe,” Miller says. That’s because you might owe on the vehicle more than the carrier pays out, or you might not be current with payments on your car loan.
“If you haven’t made payments, or are upside down or late, now there is a gap [between] what you owe and what you’re getting paid,” Miller says. You are responsible for the shortfall, but if you have gap insurance with your auto policy, this is where it kicks in.
Gap insurance bridges the difference between what you owe and the amount of the payout from the insurance carrier. If you don’t have this optional coverage in your policy, then you need to come up with the rest.
If You Want to Keep Your Car After It’s Declared a Total Loss
If your insurance carrier determines your car is a total loss, you may wonder if it’s possible to keep your vehicle. Some drivers may want the salvaged parts, while others may simply want to keep their car, even though it is not drivable. Either way, the answer is yes, although you should proceed with caution if you choose this option.
“You may also be able to keep the vehicle as part of your settlement negotiations,” Espenschied says.
However, this may not be the case for everyone. If you want to keep your vehicle after a total loss is declared, first confirm the following:
- If you own the car, it’s your decision. If you still owe money on a loan or lease, it’s up to the lienholder — the entity which owns the title until the car is paid off.
- Does your state allow it? Some states have restrictions on keeping a car after it’s totaled.
- If you do intend to drive it, can it be fully repaired?
- Will your car pass an inspection once repaired?
- Do you have an insurance carrier that will insure a salvaged vehicle?
If there is any doubt whatsoever about any of the points above, it’s wise to move on.
Next Steps After Your Car Is Totaled
Follow these practical steps to help you stay focused on getting back on the road safely, and perhaps with a new vehicle.
File An Insurance Claim
The sooner you file your claim, the better. The damage to your vehicle could be greater than you realize, and the insurance carrier should be involved from the beginning of the claim.
Have Your Vehicle Towed to an Approved Body Shop
“Your vehicle does not have to go back to the dealership,” says Miller. “You can decide what shop you want it taken to. Once you do that, then the shop can start on the estimate.”
Gather Your Documents
One of the most important steps is to remember to gather your documents inside the vehicle.
“Don’t forget to take everything out of the car,” says Douglas Heller, an insurance consultant and expert with the Consumer Federation of America. “After the trauma of serious wrecks, it is easy to forget the personal and even valuable items that might be in the glovebox or the trunk; people should try to get everything out that they can before signing the car over to the insurer.”
Research Your Car’s Value
Not only should you understand your car’s current value in the marketplace, but you should also research how much any accessories and after-market items are worth.
These are “extra features [that] add value to the vehicle and increase your final settlement amount,” says Espenschied, who cites the case of a moonroof, audio and video equipment, and an upgraded trim package that an adjuster did not take into account when evaluating a car totaled because of hail damage.
The more knowledgeable you are on this subject, the better you are able to negotiate with the insurance carrier for your payout.
“Consumers don’t realize they can negotiate for a higher settlement amount based on the current market availability of the same vehicle,” Espenschied adds.
“Consumers should insist that they get all the costs of replacing the totaled car,” Heller says. This includes “the taxes and fees associated with buying a replacement car, as well as the refund of the license or registration fee from the totaled vehicle based on the remaining term of that registration.” For example, “if you paid $120 for the annual registration of your vehicle one month before your accident, you should get $110 added on to your claim settlement to cover the unused portion of the old car’s fee.”
Of course the insurance carrier may not see the value in your car the way you do, and the payout may not equal what it costs to purchase a new car.
“The carrier is not obligated to buy you a new car unless you have new car replacement coverage on your policy,” says Miller.
If You Are Renting a Car While Waiting
Many drivers need a rental car while waiting for a decision on a payout, and use insurance to cover the rental costs. But be aware there is a limit to rental car coverage.
After issuing your payout documents, insurance companies will typically keep paying for the rental for a “day or two,” Miller says.
In other words, once you have the documentation in hand from the carrier with the payout, you have a limited amount of time to make a decision about a new car and turn over your rental.
Bottom Line: Understand Your Options When Your Car Is Totaled
Before you can figure out how to get a new car after a total loss, it’s crucial to deal with all aspects of your current vehicle’s condition. After filing a claim, the next step is to work with the insurance adjuster to determine the amount of the insurance payout. Understand that their evaluation is not set in stone, and that you can counter with your own, if you have done your research.
If you owe more on the car than what you’re offered, then you’re responsible for the shortfall, unless you have gap insurance.