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Total Loss Vehicle: What Happens When Your Car Is Totaled

Total Loss Vehicle: What Happens When Your Car Is Totaled

Wrecked cars are usually deemed a "totaled" for insurance purposes, but that doesn't mean the vehicle will never return to the road again.

The definition of a "totaled" car is one whose value is lower than the cost of repairs. Cars can be deemed total wrecks for many reasons:

  • Storm damage
  • Vandalism
  • Floods
  • Accidents
  • Serious mechanical malfunction

What Makes a Car Totaled

Usually, a vehicle damaged in an accident is assessed by an insurance adjuster who determines the probable repair costs. Most state regulations require insurance companies to use a threshold of 75 percent of a vehicle's value as the criteria for determining a total wreck. In 22 states, insurers use a Total Loss Formula (TLF) to determine if the cost of repairs plus the scrap value exceeds the actual cash value. In the Total Loss Formula, there is room for interpretation. That means one company may determine that a vehicle is a total loss while another may not.

How Much Will Insurance Pay For My Totaled Car?

How Much Will Insurance Pay For My Totaled Car?

Insurance only pays 100 percent of a vehicle's value if the policy includes comprehensive or replacement coverage. Otherwise, the amount paid is based on the following:

  • The car's age.
  • The number of miles on the vehicle.
  • The selling prices of similar cars in the same region.
  • The car's condition before the damage.

If the insurance company agrees, the vehicle owner can keep the car even after it is classified as a total loss. Most people take the insurance settlement and let the insurance company dispose of the vehicle. Insurance companies may sell the car as salvage to a junkyard for parts or if it still runs.

What to Do When Your Car is Totaled And You Still Owe Money?

If you're in a serious accident yet still owe money on the car,here is what you need to do:

  1. Notify Your Insurance Company: Contact your insurance provider to report the accident and file a claim. Provide them with all the necessary information and documentation about the incident.
  2. Determine the Actual Cash Value (ACV): The insurance company will assess the value of your car based on factors such as its age, condition, and mileage. This is known as the Actual Cash Value (ACV).
  3. Compare ACV to Loan Balance: Once you receive the ACV estimate from the insurance company, compare it to the remaining balance on your car loan. If the ACV is less than what you owe, you may end up owing money after the insurance payout.
  4. Gap Insurance Coverage: If you have gap insurance, it can help cover the difference between the ACV and the loan balance. Check your insurance policy to see if you have this coverage.
  5. Negotiate with the Insurance Company: If you believe the ACV provided by the insurance company is too low, you can try to negotiate with them to get a higher payout. Provide evidence such as recent maintenance records or upgrades that could increase the value of your car.
  6. Communicate with Your Lender: Inform your lender about the situation and discuss repayment options if you end up owing money after the insurance payout. They may offer options such as a payment plan or refinancing to help you manage the remaining balance.
  7. Consider Legal Assistance: If you encounter difficulties with your insurance company or lender, you may want to seek legal advice to understand your rights and options.

How Does Gap Insurance Work If a Car Is Totaled?

Gap insurance, also known as guaranteed asset protection insurance, is designed to cover the difference between the actual cash value (ACV) of your car and the amount you still owe on your car loan if your car is totaled or stolen.

Here's how gap insurance works if your car is totaled:

  1. Determine the Actual Cash Value (ACV): When your car is totaled, your insurance company will assess its value based on factors like age, condition, and mileage. This is the ACV.
  2. Compare ACV to Loan Balance: Next, the insurance company compares the ACV to the remaining balance on your car loan. If the ACV is less than what you owe, you're left with a "gap" or shortfall.
  3. Gap Insurance Coverage: If you have gap insurance, it steps in to cover the gap between the ACV and the remaining loan balance. This means you won't be responsible for paying the remaining balance out of pocket.
  4. Claim Settlement: With gap insurance, your insurance company will pay off the remaining balance of your car loan, up to the policy limit, after subtracting the ACV payout. This helps you avoid being financially responsible for a car you no longer have.
  5. Policy Limitations: It's important to note that gap insurance may have limitations, such as coverage exclusions or maximum payout amounts. Be sure to review your policy details carefully to understand what is covered.

Total Loss vs Salvage

"Total loss" and "salvage" are terms used in the insurance industry to describe the condition of a vehicle after it has been involved in an accident or other event that causes significant damage.

  • Total Loss: A vehicle is considered a total loss when the cost of repairing the damage exceeds a certain percentage of the vehicle's actual cash value (ACV) or market value. In other words, it is not economical to repair the vehicle, and the insurance company declares it a total loss. The owner may receive a settlement from the insurance company based on the vehicle's ACV, minus any deductible.
  • Salvage: A salvage vehicle is one that has been significantly damaged and declared a total loss by the insurance company. Instead of being repaired and returned to the road, a salvage vehicle is typically sold at auction to salvage yards or auto recyclers. Salvage vehicles can be rebuilt or used for spare parts, but they cannot be driven legally until they have been repaired, inspected, and re-registered with a rebuilt title.

What Happens To The License Plates When a Car is Totaled?

When a car is totaled, the fate of its license plates depends on state regulations. In some states, you may be required to surrender the license plates to the Department of Motor Vehicles (DMV) or transfer them to a new vehicle. In other states, you may be allowed to keep the plates for use on another vehicle, but you may need to notify the DMV of the vehicle's total loss status. It's essential to check the specific requirements of your state's DMV regarding license plates for totaled vehicles.

Should I Buy a Total Loss Vehicle?

Should I Buy a Total Loss Vehicle?

Total loss vehicles are often priced lower than similar models with clean titles, making them appealing to buyers with limited funds or those seeking cost-effective options. If you're proficient at repairs or have access to affordable repair services, you may be able to address the vehicle's damage yourself, potentially saving money in the process. However, it's crucial to evaluate the extent of the damage and consider the vehicle's safety and reliability.
Some total loss vehicles may have structural issues or other problems that could compromise safety or lead to costly repairs down the line. Furthermore, investigate insurance and registration requirements for total loss vehicles, as these may vary by insurer and state. Finally, factor in the vehicle's potential resale value, which is typically lower than that of cars with clean titles. Conducting a thorough inspection and seeking advice from a trusted mechanic or automotive expert can help you make an informed decision tailored to your needs and circumstances.

How to Use GoodCar Reports When Buying a Car

A GoodCar vehicle history report is a record of a vehicle's use and repairs. Traced by the unique 17-digit that is stamped into the car's frame during manufacture, the report shows:

  • Repair history
  • A record of odometer readings
  • Past owners
  • Locations where the vehicle was registered
  • Accidents
  • Recalls
  • Flood damage
  • Any past title issues, such as salvage

It's up to the buyer to thoroughly research a vehicle's history before purchasing, especially at auctions. It's not uncommon for some states to be more lenient than others to return salvage-titled cars to the road and remove the salvage designation. Those who try to pass off rebuilt cars as if they are in original condition (not wrecked or salvaged) may "title wash" or move vehicles from state to state. These owners request new titles in each state until the salvage designation is lost. Most states consider it fraudulent to sell a car without disclosing a salvage history.

States to beware of include Vermont, which allows vehicles over 15 years old to be registered without a title. If the vehicle you are considering has been registered in Vermont tt can indicate an attempt to "title wash" or remove a negative salvage designation from the car's title. Mississippi has also been identified as a title-washing state, affecting the selling prices of thousands of flood-damaged cars in this hurricane-prone region. New Jersey had a title-washing issue following Hurricane Sandy, but some officials say it only applied to vehicles being sold online by private individuals who suspected that flood damage would brand the cars with salvage titles.

Frequently Asked Questions About Totaled Cars

If Your Car is Totaled Can You Buy it Back?

Yes, in many cases, you can buy back your totaled car from the insurance company. This process is known as "retaining" or "buying back" the vehicle. Keep in mind that buying back a totaled car may come with certain restrictions or requirements, such as obtaining a salvage title for the vehicle and ensuring it meets state safety and emissions standards before it can be driven again.

Who Gets The Insurance Check When a Car is Totaled?

When a car is totaled, the insurance check is typically made payable to the vehicle owner and any lienholder on the car loan. If you own the car outright, you will receive the insurance payout directly. However, if you still owe money on a car loan, the insurance company will issue the check jointly to you and your lender.

What does a GoodCar Vehicle Report Show?

A GoodCar vehicle history report is a helpful tool when considering the purchase of a used car. If you have the unique 17-digit Vehicle Identification Number of the vehicle you are considering, a GoodCar report will show all the known recalls, accidents, locations of registration, title status, and major repairs done to that vehicle. With this information, you may be able to determine if the car has been wrecked, flooded, well-maintained, or owned by several people (a potential sign of poor quality and problems).

How Long Does it Take for Insurance to Payout Total Loss?

Generally, insurance companies aim to process claims as quickly as possible, but the timeline can be affected by factors such as the complexity of the claim, the extent of damage to the vehicle, and any investigation required.

How to Get a New Car After a Total Loss

After your insurance company deems your vehicle a total loss, they will issue you a payment to replace the car. You can take that money and purchase a new car to replace your total loss vehicle.

How to Use a Total Loss Car Value Calculator

If your vehicle is declared a totaled, you can use a car value calculator to find the car's residual value. If it has no value, you can sell it for scrap. You can also use a car residual value calculator to find the value of any used car.