What Is a Totaled Car Insurance Payout?

Imagine this: You get into a car accident and fear the damage to your vehicle is beyond repair. You have it towed to the nearest repair shop, but the odds are you won’t be able to drive it again. What do you do next?

If you have car insurance, a comprehensive, collision, or uninsured motorist policy will provide a total loss insurance payout, which you can put toward another vehicle. With the insurer’s help, you can move on from your total loss and look for a new car to buy.

What Is a Total Loss?

Auto insurance companies use the term “total loss” to describe a totaled car. This is a car that’s damaged beyond repair and is no longer drivable. A car accident, natural disaster, or act of vandalism may cause this damage.

What Is a Total Loss Threshold?

Depending on where you live, your carrier may automatically deem your car a total loss because the state laws require it. These measures prevent drivers from operating damaged vehicles and potentially causing dangerous situations. Your state may determine whether a car is a total loss with a standard total loss formula or a simple percentage threshold.

Total Loss Formula

If the car’s repair costs are higher than the vehicle’s value, they exceed the state’s total loss threshold (TLF). States like California, Massachusetts, and Ohio use a TLF to calculate the sum of the repair costs plus the vehicle’s salvage value, or the car’s worth after accident damage. If this figure exceeds the car’s actual cash value, it becomes a total loss.

Simple Percentage Threshold

Certain states, such as New York, Colorado, Florida, and Texas, use a set percentage of the car’s value to determine a total loss. This ranges from 60% to 100% of the value, depending on the state. If the vehicle repair costs surpass the percentage, insurers declare the car totaled.

For example, imagine you get into an accident and your car sustains damage that seems repairable. Before the collision, your vehicle was worth $8,000, but the cost to repair it exceeds $4,800. States with a simple percentage threshold of 60% or less will mark the car a total loss. Instead of paying repair costs, your insurer may reimburse you for the loss.

How Do Auto Insurance Companies Calculate a Total Loss Payout?

Your insurer assigns a claims adjuster to your case to determine the value of your total loss claim. This process involves figuring out your car’s actual cash value (ACV), or pre-loss value. When making this calculation, the adjuster considers the following information:

  • The car’s age.
  • The make and model of the vehicle.
  • Its mileage.
  • The pre-loss condition.

Insurance companies have their own measures for determining a car’s ACV, meaning they may include additional factors. After your insurer calculates the amount, and you agree with it, the company issues you a total loss payout.

If your policy includes a deductible, the insurer subtracts this amount from the payment. For example, if your payout is $6,500, and your deductible $250, expect to receive a check or direct deposit of $6,250.

How Does Total Loss Insurance Work?

Specific coverages within your insurance policy cover a total loss, depending on how you totaled your car. You can use one of the following insurance coverage types to file a claim for a total loss payout:

Collision Coverage

If you’re involved in an accident with one or more vehicles that totals your car, collision coverage helps cover the loss, regardless of who’s at fault. This type of insurance also applies to collisions with a stationary object, such as a tree or fence.

Comprehensive Coverage

Comprehensive insurance covers weather-related events that total your car, such as hail or high winds that cause a tree to fall on your vehicle. It also covers theft of a vehicle and damage due to fire, flood, vandalism, and accidents with animals.

Uninsured and Underinsured Motorist Coverage

If you get into an accident with an uninsured driver and your car gets totaled, uninsured or underinsured motorist property damage coverage applies. Since the uninsured motorist cannot pay for your losses in full, your auto policy covers them. The same is true if the at-fault driver has insufficient car insurance to cover your totaled vehicle.

What to Do When You Total Your Car: A Step-By-Step Guide

If your vehicle gets damaged and you think it’s a total loss, it’s important to act quickly. Here are the steps to follow if you believe your car is totaled:

1. Contact Your Car Insurance Provider

If you get into an accident or your vehicle is damaged by another loss, like hail or flooding, you should contact your insurance provider right away. Contact your agent or call the claims department number on your insurance card. An agent will explain which policy the total loss falls under so you can correctly file a claim.

If your car is not drivable, ask your insurance company about towing the vehicle to the nearest auto repair shop where a claims adjuster can assess the damage. Before handing over your keys, collect any belongings from the car. Once the adjuster begins the assessment, they may contact you for additional information to complete the process.

2. Find the Required Documents to File a Claim

You need to find your car’s title and sales receipt, if applicable. Your insurer needs this information to assess the car’s value. If you have trouble locating these items, contact your local DMV to request a copy.

3. Research Your Car’s Value

Before your insurer finalizes your claim settlement, research your car’s current market value or assess what it was worth before the accident. Use an online resource, such as Kelley Blue Book, to look up your car’s value using the vehicle identification number (VIN). To calculate a fair market value, compare the prices of similar vehicles in your area. Use this knowledge as leverage when discussing your car’s ACV with your insurance agent to ensure you get a good deal on the total loss payout.

4. Shop Around for a New Car

After accepting the insurer’s total loss payout offer and completing the paperwork, you can shop for a new car. Use the funds from the total loss claim as a down payment for the new vehicle, or consider leasing a vehicle if that’s better for your finances. It may be beneficial to shop around for new car insurance quotes to get the best price. You might also consider adding optional policies to better protect your new vehicle.

What Happens to a Totaled Car?

Typically, your car insurance company keeps the totaled vehicle and notifies the DMV of its status. The DMV may then mark your car as a salvaged title, which indicates the vehicle has experienced significant damage or is a total loss. Buyers who specialize in repairing salvaged vehicles can buy the car from the insurer or sell it for parts.

You may choose to keep the car for sentimental reasons or repair it yourself. However, there are potential drawbacks to this. If your insurer allows you to keep the vehicle, it may reduce the value of your total loss insurance payout. Some states prohibit you from keeping a totaled vehicle, and those that allow it may require you to get a salvaged vehicle certificate. Check individual state laws to learn about your options.

Frequently Asked Questions

Can You Negotiate a Total Loss Payout?

It’s possible to negotiate your total loss payout if you believe the car’s value is higher than your insurer claims. For instance, imagine you outfitted your car with a brand-new set of wheels and tires before the accident. Enhancements such as these can increase the vehicle’s value, despite depreciation rates. However, you will need to submit additional documentation and receipts to prove the higher value. Even then, there’s no guarantee that the adjuster will change their offer.

What Happens If the Totaled Car Was a Leased Car?

If you were leasing your totaled vehicle, your insurance provider sends your lender a payout equal to the car’s ACV, minus the deductible. This goes toward the remaining balance on the lease. If the ACV is higher than the amount you owe, your insurer pays you the difference. If it’s lower, your lender expects you to cover the outstanding balance.

But what if you weren’t at fault in totaling your financed car? You can contact the at-fault driver’s insurance company and provide them with your lender’s information. They will pay off the outstanding balance.

Is Gap Insurance Better than Total Loss Insurance?

Are you leasing your car? Carrying a gap insurance policy is a good way to stay protected. This type of policy covers your remaining lease balance if your car gets totaled. The same coverage can apply to an auto loan.

If you total a leased car, gap insurance is especially beneficial when the car’s ACV is lower than what you owe. However, if you own your car outright, gap insurance is unnecessary. Instead, consider increasing your current coverage limits for optimal protection against a total loss.

Does a Total Loss Claim Affect Your Credit?

A total loss claim rarely has a negative effect on your credit score. But if the total loss is a leased car, you’re still required to pay back your lender.

If you don’t pay back the remaining balance, your credit score could drop. Maintain your credit score by making your monthly payments on time while waiting to reach an agreement with your insurer about the total loss payout.

A totaled car doesn’t mean you’re out of options. Ensure your insurance policy provides the right coverage to protect you in a total loss accident. Collision or comprehensive coverage reimburses you based on the actual cash value of your car.

Contact your auto insurance provider to determine whether your vehicle is a total loss. You can secure a total loss insurance payout from your provider, start shopping for a new car, and get back on the road.

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