When you get into an accident and have a totaled car, it’s a total bummer. Simply put, your auto insurance company “totals” your car after they declare it a total loss.
We totally get it that you might be confused about totaled cars. We’re here to clear up any confusion!
The Kelley Blue Book, a car-shopping resource often called KBB, describes a totaled car as “a vehicle that cannot be repaired legally, safely or cost-effectively.” KBB offers three reasons that a car might be totaled, including if it is:
- damaged badly enough that it must be totaled according to state law
- not safe to drive, even if repaired
- more expensive to repair than the car is worth
Andy Gastley, practice leader at the A.G. Roth insurance brokerage in Savannah, Ga., explains that insurers don’t have a set formula to decide whether a car is a total loss.
However, John Espenschied, agency principal and owner at Insurance Brokers Group LLC in Chesterfield, Mo., says a wrecked car typically is totaled if the cost of fixing it would equal at least 75 percent of the vehicle’s fair-market value — how much it’d be worth if it hadn’t been damaged.
“Usually, a vehicle is totaled when it costs less to replace the damaged vehicle with a similar vehicle than it does to repair the vehicle,” Gastley says. “Sometimes an insurance adjuster may determine that the damage is too much to return to the pre-loss condition. And totaling it is the best option.”
The Insurance Information Institute points out that most auto insurance policies won’t pay to repair a totaled car.
How can you get an insurance settlement when you have a totaled car?
Once you have a totaled car, the process of settling for the damage starts, according to Espenschied. The payout depends on the mileage and age of your car compared with a similar car on the road, he says.
“Most likely, you’ll be offered a settlement amount that’s initially low,” Espenschied says.
For instance, the adjuster (who investigates insurance claims), might not have taken into account the value of upgrades and options, he says.
Espenschied says that happened to him with a hail-damaged Ford SUV. His insurer initially undervalued extras such as his leather seats, moonroof and special Eddie Bauer package. But once added, he had about $1,000 added to the settlement.
How much can you get when you have a totaled car?
Legal advice website Nolo.com emphasizes that an insurer will cover damage to your car only up to the limits set out in your policy.
For example, Nolo.com says, if another driver caused $25,000 worth of damage to your car, but that driver had only $10,000 of coverage for property damage, his or her insurer will put just $10,000 toward repairs.
Nolo.com says the only way to recover the remaining $15,000 in repair expenses would be to collect it from your own collision coverage.
Nolo.com outlines three options if you’re dissatisfied with how your insurer is calculating the damage on a totaled car:
- Go ahead and accept it.
- Try to work out a better deal.
- File a lawsuit against your insurer.
To negotiate a better deal, you’ll need to come up with evidence — such as mileage records, maintenance history and affidavits from mechanics — to prove your car was worth more than a typical car of its make and model, the Insurance Information Institute says.
Before you do agree to a payout, check the market value of your car. Resources for this include KBB and the National Association of Automobile Dealers’ (NADA) Guides, the institute notes.
The institute emphasizes that a claims adjuster’s assessment of the monetary damage is just an estimate. In the end, Espenschied says, “make sure you are happy with the settlement offered before signing off on the claim.”
If you have a totaled car can you keep it?
In some cases, you can negotiate to keep a totaled car after the settlement amount has been determined, Espenschied says. According to AAA, this usually happens with older, less valuable cars. If you do keep the car, your insurer normally deducts the salvage value from the settlement amount.
AAA says insurers often total older vehicles because repairing them requires expensive parts. However, AAA adds, a repair shop might be able to locate used parts.
Online car-buying marketplace Autotrader advises against buying your totaled car from the insurer, even if it’s still drivable or might be fixable. For instance, it may have hidden damage that causes headaches later.
How can you pay off the outstanding balance when you have a totaled car?
The Insurance Information Institute warns that when you have a totaled car, you might owe more than the insurance payout.
So-called “gap” insurance might make up the difference. This type of coverage is optional, not mandatory, although most car leases require it.
But if you have a car loan and didn’t already have gap insurance, then you’re stuck bridging the financial gap. In other words, you still must make monthly loan payments until the balance is wiped out.
According to Nolo.com, the payout you receive from the insurance company will have your name on it, as well as the name of any lender. Why is the lender’s name on the check? Because you must pay any money that you still owe the lender.
“In the best of circumstances after a total loss, the … check you receive from the insurance company will be for a greater amount than the sum you still owe on the car loan. In that case, after paying the loan, you might pocket a few hundred dollars for purchasing a replacement car,” according to Nolo.com.