When insurers determine the total loss of car value when you’ve been involved in an accident, they consider several factors. If you lease or finance your vehicle, you might be responsible for the remaining payments unless you carry specific insurance.
When Is a Vehicle Considered a Total Loss?
A damaged vehicle is considered a total loss when the estimated cost of fixing it exceeds its cash value. This type of claim differs from other minor claims and involves more effort on your part.
For instance, if you’re involved in an accident that causes extensive damage to your vehicle, your insurer might decide the vehicle is a total loss. This means it is totaled, and the insurer declares it’s not worth the cost to repair it.
Certain states have laws that specify a total vehicle must adhere to certain thresholds. According to Investopedia, in Alabama, a vehicle can be totaled when the damage exceeds 75 percent of its value. If a vehicle is worth $5000, and the repair estimate is $4000, the vehicle would be considered totaled.
What Is the Total Loss Claims Process?
To receive an insurance payout for a vehicle deemed a total loss, you must carry either property damage liability or collision or comprehensive coverage on your policy.
Property damage coverage is mandatory in every state, but you must file a claim against the other driver to receive the payout. To receive compensation, the other driver must be negligent in the accident.
One of the easiest ways to get a payment for a total loss is through your insurer, which you can do through collision coverage. With this type of coverage, it doesn’t matter who was at fault for the accident.
Collision and comprehensive coverage help replace a totaled vehicle. These two coverages are usually required if you lease or finance your vehicle. If you have paid off the car, they’re optional.
If you have these types of coverages and you’re not injured, your first step after the accident is filing a claim with your insurer. A claims adjuster will inspect the vehicle to determine damage and possibly total loss designation.
What constitutes a total loss isn’t always simple, and how it’s determined varies by state. Some states have a total loss threshold (TLT), in which damage only needs to exceed a percentage of the vehicle’s value.
Approximately half of the states use the total loss formula (TLF). In this scenario, if the sum of the repair costs plus the salvage value of the vehicle exceed its actual cash value (ACV), then the car is considered a total loss.
What Happens if Your Vehicle Is a Total Loss?
After you agree to your vehicle being a total loss, most insurance companies ask you to take these steps:
- Remove the license plates and personal items.
- Give the claims adjuster the key.
- Send in any extra keys.
- Complete the paperwork.
- Notify the leasing company if you’re leasing the vehicle.
Your insurer usually takes the vehicle and notifies the DMV that it has been totaled. Depending on your state, the vehicle will be declared a salvage vehicle, and anyone who specializes in salvaging vehicles can purchase it.
Certain states allow you to keep the totaled vehicle and either repair it or keep it. Choosing this option will give you less cash, because your payment will be the ACV minus the value of the vehicle as salvage.
How Do You Receive Payment for a Total Loss?
The amount of money you receive for a total loss is the ACV, which is the same number that determines if the vehicle is a total loss. This figure involves the pre-loss market value minus the depreciation when it was new. Ultimately, the ACV is based on wear and tear, the vehicle’s age, and other factors deemed relevant by your insurer.
Once you agree to the number, the insurer will give you the money if you own the vehicle. If it’s financed or leased, the compensation goes to the lender or leasing company.
If you total a financed or leased vehicle, you might owe money. New car replacement coverage can make up the difference, while gap insurance can help cover any remaining balance on a leased vehicle.
Do You Have to Pay a Loan on a Totaled Vehicle?
If you’re financing a vehicle that’s been totaled, your insurer will typically write a claim check payable to you and your lender. This means you need to agree with your lender on how to release the funds. Usually, the lender receives reimbursement first, and you receive any remaining money.
You might still owe your lender more than the money your insurer provided. In that instance, you’re responsible for the balance. Consider, for example, if you owe $15,000 on your loan, but the totaled vehicle has depreciated to $13,000. If you carry collision coverage, your insurer will reimburse you for the ACV of $13,000. You then need to pay the lender the $13,000 plus the remaining $2000.
How Does the Car Insurance Valuation Process Work?
When you report an accident to your insurer, the company sends out an adjuster to determine damage. The adjuster determines if the vehicle is deemed totaled. According to Insure.com, most insurers decide to total a vehicle if the cost to repair it exceeds a specific percentage, which is usually between 51 to 80 percent.
If the vehicle is totaled, the adjuster conducts an appraisal and gives the vehicle a value. The adjuster does not consider the damage during the appraisal but estimates what the cash offer should be on the vehicle before the accident occurred.
The process of dealing with a totaled vehicle doesn’t have to be complicated as long as you know what to expect. Your insurance company can guide you through every step, but know you won’t receive as much money for the vehicle as you did when you paid for it.
Check this out if you need additional information, resources, or guidance on car insurance.
Sources:
Car Insurance | caranddriver.com
How Car Insurance Companies Value Cars | investopedia.com
Total Warfare: What to Do When Your Auto Insurer Totals Your Car | insure.com
Is Gap Insurance Worth It? | caranddriver.com
What Is Totaled Car Insurance Payout? | caranddriver.com
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