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What Happens When A Car Is Totaled?

A totaled car can be a scary idea. If the cost of repairing your car is close to or exceeds the value of the vehicle, your insurance company may call it a total loss. But what happens when your car is totaled? After an accident, there is a lot going through your mind. You’ll eventually start wondering if your insurer will cover the total cost of your car, and if not, how much your insurance coverage will pay out for a totaled car. Drivers will also be curious about buying a new car after a total loss. All of these are important questions, and understanding how your insurance works when you total your car is critical to getting the most out of your full coverage.

Below, we’ll cover everything you need to know about a totaled car. From how insurance companies decide that a car is totaled to what happens if you’re not at fault in the accident but still owe money on your car and don’t have GAP insurance, this guide will help you figure it all out!

When Is A Car Totaled?

For starters, drivers must learn what the term “totaled” actually means. After an accident that results in damage to your car, your insurance company (or the other driver’s insurance company if you are not at fault) will have a third-party trusted mechanic or experienced adjuster look at your car very carefully to determine the next steps.

Sometimes, your car might be sent to a mechanic for repair, but in other cases, the insurer may deem your vehicle to be a total loss, or a totaled car. Many consumers believe that a totaled car is one that is simply beyond repair, and while this is true in some cases, there are two different types of total loss vehicles.

Cars That Can’t Be Repaired Safely

Your insurance company may tell you that you have a totaled vehicle if the damage is so great that the car can’t be properly repaired and made safe to drive again. Typically, this happens when the car’s actual frame is severely damaged.

Damage to the frame weakens the entire structure of the car, which has a huge impact on safety ratings and thereby increases your risk of injury or death and therefore the company’s risk of a claim.

Cars That Cost More To Repair Than They Are Worth

The other reason why your insurance company may declare your car a total loss has to do with the car’s value versus cost of repairs. For example, if your car is worth $5000, according to fair market value, but your insurer finds that the repairs will exceed this amount, then repairs make no sense.

It is more cost-effective for your insurer to give you a check for the value of the car, called the actual cash value. Each state has its own rules about what constitutes a total loss, so this is an important consideration to keep in mind.

Total Loss Formulas By State

Here are the total loss formulas by state. Most insurance companies will automatically consider a car totaled if the damage exceeds a percentage of the cars actual cash value. The percentage, known as the Total Loss Threshold (TLT), is regulated by state law in many parts of the United States.

In Texas and Colorado, the damage threshold is 100%. This means that repairs must meet or exceed the market value of the car. However, states like California, Massachusetts, Illinois, Arizona, New Jersey and Pennsylvania have no TLT requirements by law. This allows insurers to use their own equation to determine whether a vehicle is totaled.

Arkansas70%New Hampshire75%
CaliforniaTLFNew JerseyTLF
Colorado100%New MexicoTLF
ConnecticutTLFNew York75%
DelawareTLFNorth Carolina75%
Florida80%North Dakota75%
Indiana70%Rhode IslandTLF
Iowa50%South Carolina75%
Kansas75%South DakotaTLF
Minnesota70%West Virginia75%
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What Happens If My Car Is Totaled In An Accident?

The most common question that people ask is what happens when insurance totals your car. In other words, what are the next steps with your insurance company after a car is totaled, what should you expect to happen, and how much of a total loss payout should you get?

If your car is totaled, this determination will be loaded into your state’s titling and registration system, which makes driving it illegal to drive regardless of the insurer’s decision.

What’s more, you can’t insure a totaled car. Of all the things that determine the next step in the process, figuring out who was at fault for the accident is by far the most important.

What To Do When Your Car Is Totaled

In short, if you’re involved in a car accident, there are a few steps before and after your vehicle is considered totaled:

  1. Contact your insurance company and file a claim.
  2. Your insurer will determine whether your car is a total loss based on value vs repair costs.
  3. The company will issue a total loss payout equal to the actual cash value of the totaled car, minus the deductible on your full coverage (comprehensive or collision insurance).

Who Was At Fault?

What happens in the event of a totaled car depends on several factors, but the most important of these involves fault. If you were involved in an accident with another car, and the driver of that car was deemed to be at fault, then his/her insurance company is required to pay for your totaled vehicle (actual cash value).

On the other hand, if that driver was uninsured, or if the driver did not have enough insurance to cover the cost of paying for your car, then your insurance company would pick up the cost as long as you have the proper uninsured/underinsured motorists coverage. After compensating you for your loss, your insurer will likely file a legal claim and sue the other driver to get their money back.

On the flip side, if you were at fault, the only way your insurer will reimburse you for your totaled vehicle is if you were carrying the proper comprehensive and/or collision coverage.

This is true whether you were involved in an accident with another driver or an object that resulted in a totaled car. If you do not have comprehensive and/or collision insurance, your car is totaled, and you are at fault, you will not receive any compensation.

Getting Around After Your Car Is Totaled

If the insurance company deems your car a total loss and you can’t drive it, you may be able to obtain a rental car for a limited time. For example, if you were at fault for your accident and the coverage you purchased comes with a clause for a rental car, then you will have access to one (according to your policy’s terms) as soon as you pay your deductible in full.

If the other driver was at fault, that driver’s insurance company will likely provide you with access to a rental car for a limited period of time while you wait for your claim to process and a check to arrive.

Most insurance companies will process your claim as quickly as possible in the name of good customer service, but it is important to pay close attention to what you are offered.

Make sure that the amount represents the fair value of your car before accepting it; once you sign the check, this signifies acceptance of the amount you were offered, and you can’t petition the company for more money.

How Much Will Your Insurance Pay For A Totaled Car?

Another question that drivers may have is how much will insurance pay for a totaled car. Different auto insurance companies calculate the value of a totaled car very differently and this will determine the amount paid out to them.

Many consumers mistakenly believe that they will be compensated the amount they paid for their cars – or at least very close to it – if they have a totaled vehicle. This is typically not the case.

Instead, you will get your totaled car’s value. How your car’s value is calculated will depend on the companies internal proprietary methods. Your insurer looks at the current market value of your car based on factors like condition, mileage, make, model, and year, and uses this to determine the amount of money you are owed.

With that said, if you overpaid for a used car, you might find that your reimbursement is not enough to replace the totaled car with one of the same make, model, and year in similar condition.

Even if your car is practically still brand new, it started to depreciate the minute you drove it off the lot. According to some sources, depreciation rates can be as high as 20% in the first year, then 15% to 20% per year after that. Your insurer will only pay the current market value – and that also takes depreciation into account.

Thus, if you paid $20,000 for your car just a few months ago, your insurer may only offer you $15,000 minus your deductible. Some insurance companies offer policies that reimburse you for the amount you paid for your car up to a certain point, which is usually the first year of ownership.

If you still owe money on your auto loan, your totaled car insurance payout will likely be made out to both you and your lender. Unfortunately, you may still owe your financing company more for your car than the insurance company pays out, unless you have GAP insurance coverage.

What Happens If Your Totaled Car Isn’t Paid Off?

Finally, you’ll have to think about what to do if you still owe money on a totaled car. When it comes to handling your finances and dealing with a totaled car, it’s important to think about what would happen if your totaled vehicle was financed and you still owe money on your auto loan.

Unfortunately, whether or not you own your car is of no consequence to your insurer. The company will only pay you the fair market value minus your deductible, and if you owe the financing company more than amount, it is your responsibility alone. The difference in what you receive and what you owe can sometimes be substantial.

Many people who have loans on their cars choose to buy what is known as GAP insurance, also known as Guaranteed Asset Protection Insurance. Essentially, GAP insurance coverage is designed for this specific situation, and this add-on to your policy guarantees that your insurer will reimburse you enough money to pay off the total amount you owe on your totaled car.

This can be quite a lifesaver, and because GAP insurance is usually cheap, it is always in your best interest to get this type of coverage added to your policy for new cars.