Total loss insurance coverage
Totaling your car is, to put it eloquently, a pretty big bummer. Even if you’re left uninjured, the mess of logistics that follow suit is confusing and hectic during an already stressful time. Where to start first? Who to call? Not to mention some of the terms the insurance company might use that you aren't familiar with.
The actual meaning of total loss, how it’s determined, whether or not you can dispute that determination, and what comes next are all questions that arise after a vehicle has been totaled. Fortunately, these are the questions we'll cover below.
What exactly is a total loss?
When a car is referred to as "totaled," it means that it has been damaged to the point that it is a "total loss." What makes a car a total loss varies by state. Basically, there are two schools of thought: total loss formula states (TLF) and total loss threshold states (TLT). For a total loss threshold state, it will work like this:
- Your insurance company's claim adjuster will determine the total cost of repairs plus the scrap value of the car.
- They will then determine the actual cash value (ACV, also known as fair market value) of the vehicle before the accident.
- If the value of the total cost of repairs plus the scrap value is greater than or equal to the ACV, your insurance company will total the vehicle.
Keep in mind that the actual cash value will usually be less than what you paid for the car. At first, it may seem surprising and disappointing, but depreciation has to be taken into account when it comes to the value of your car. The longer you've had the vehicle, the more depreciation there is simply by time passing.
Understanding the total loss threshold
In total loss threshold states, a vehicle is determined to be totaled if the value of the damages exceeds a certain point. This “threshold” is valued as a percentage and varies a bit between states. For example, Arkansas and Wisconsin both have a threshold of 70%. So if the repairs in those states are greater than 70% of the AVC, then the vehicle can be declared a total loss by the insurer. If your car's value before the claim was $10,000, but it sustained more than $7,000 of damage, then that meets the threshold of 70%. In states such as Colorado or Texas, however, the threshold is 100% - meaning the car won't be totaled by the insurance company unless the repair costs are greater than 100% of the value of the car. That same $10,000 car in Colorado would need $10,000 worth of repairs before it would meet the threshold in that state.
But although there are specific thresholds for many states, that doesn't necessarily mean an insurance company has to reach that percentage limit to total a vehicle. For example, if a vehicle in Florida (with an 80% threshold) has damage that is 75% of the value, the company may see other factors that impact its repair, and declare it a total loss, even though it wasn't quite at the threshold. Every situation can be slightly different, so it's important to communicate well with your insurance company after a claim.
Specific state information
The table below outlines each state and its threshold for totaling a vehicle, or identifies the states which use the total loss formula to calculate damage after a claim. The total loss formula involves calculating the fair market value of the car prior to the damage, then subtracting the value of the salvaged vehicle. If repairs meet or exceed this number, then your car insurance company can declare the vehicle a total loss at that point.
A total loss threshold is the percentage of the value it would take to repair the vehicle. If a $10,000 car has $8,000 worth of damage, then that equals 80%.
|State||Cost Needed to Declare Total Loss|
|Alaska||Total Loss Formula|
|Arizona||Total Loss Formula|
|California||Total Loss Formula|
|Connecticut||Total Loss Formula|
|Delaware||Total Loss Formula|
|Georgia||Total Loss Formula|
|Hawaii||Total Loss Formula|
|Idaho||Total Loss Formula|
|Illinois||Total Loss Formula|
|Maine||Total Loss Formula|
|Massachusetts||Total Loss Formula|
|Mississippi||Total Loss Formula|
|Montana||Total Loss Formula|
|New Jersey||Total Loss Formula|
|New Mexico||Total Loss Formula|
|Pennsylvania||Total Loss Formula|
|South Dakota||Total Loss Formula|
|Utah||Total Loss Formula|
|Vermont||Total Loss Formula|
|Washington||Total Loss Formula|
What is a salvage title car?
A salvaged vehicle, also known as a salvage title, is the end result of a total loss. While the exact procedures are governed by your state’s DMV, after a total loss decision by your insurance company, your DMV will issue a “salvage certificate.” This will prohibit you or anyone else from driving the salvage car as it has been deemed unsafe and not roadworthy for public use.
Because salvage vehicles are unfit for use on public roads, they are not eligible for auto insurance. However, if you or your insurance company decide to repair the vehicle, get it re-inspected, and registered, it will be branded a rebuilt title vehicle and may be eligible for rebuilt title insurance.
Rebuilt title insurance is likely to be handled differently than standard insurance policies. Because of the nature of salvage and rebuilt titles, many insurance companies will flat-out deny you coverage. The risks rebuilt cars present are deemed too high for many insurance companies. If your insurance company does agree to provide coverage, it will typically only be liability coverage. Full coverage — which is made up of comprehensive and collision coverage in addition to liability insurance — is rarely an option for rebuilt title vehicles.
Your best bet for finding rebuilt title car insurance is to be upfront with insurers. This way, you won’t waste time with companies that won’t offer any insurance coverage. An insurance company will find out if the vehicle has been totaled and repaired anyway, so there isn’t much reason to withhold this information.
Salvaged vehicles tend to be a lot cheaper than non-salvaged ones with clean titles. Because of this, they have a great allure for buyers on a budget. But there are some things you need to consider if you’re going to buy a vehicle that has been salvaged.
Do a VIN check
If a car has been salvaged, it will be listed on the vehicle history report which you can check via the VIN or vehicle identification number. You should do this with any vehicle you're thinking of buying, regardless of the title status.
Get it inspected
Do not buy a vehicle that hasn’t been inspected by your preferred mechanic. It’s pretty clear why: you want to ensure all the repairs have been made properly and there aren’t any underlying issues with the vehicle.
Get original total loss declaration or repair information
This will help determine what actually happened to the salvaged car to better understand the repairs made in the previous step.
Do your own research on the vehicle
If you’ve made it this far with the vehicle, compare the value of the vehicle to what’s listed on NADA online or Kelley Blue Book. If you’re buying from an independent buyer — say, the former owner — you might be able to negotiate the price. Moreover, do research on the buyer to see if there are any red flags in his or her past concerning selling salvaged vehicles.
Get insurance quotes ahead of time
As long as you have the VIN, you're able to get quotes prior to purchasing the vehicle. As we discussed, getting insurance on a vehicle with a salvaged title can be tricky. In order to legally drive away with the vehicle, you'll need insurance. So plan to get some quotes ahead of time to avoid any issues.
Find the policy with the best coverage for your specific needs.
What is the total loss settlement process?
Totaling your car can be a perplexing and overwhelming time, especially if you're not sure how to navigate the claims process for such a sizable, impactful loss. Let's review what the typical total loss settlement process is like, from start to finish, but keep in mind that your experience may vary due to differing circumstances.
1. File a claim with your insurance company.
If you were not at fault in the accident and you file a claim with your insurer, they will likely seek reimbursement from the at-fault party's insurance company to cover the loss. In some cases, you may be able to recoup your deductible. When it comes to filing a claim, a total loss may happen under collision, comprehensive, or liability insurance depending on the situation.
For an at-fault accident, your claim would fall under collision coverage. In a not-at-fault accident, the liability coverage of the at-fault driver would cover your vehicle. For weather-related incidents or vandalism, your claim would fall under your comprehensive coverage.
2. Get your vehicle inspected for damages.
The insurance company will send a claims adjuster to review and assess the damage sustained by your vehicle. If you have rental car coverage, this would be the time to receive your rental vehicle to cover your transportation.
3. Total loss declaration and settlement offer.
The adjuster will contact you and may ask you to confirm certain details or features of your vehicle's make, model, and trim before finally offering a settlement, i.e. what they think your totaled car is worth in terms of actual cash value. You will need to accept the settlement to proceed, but you may be able to negotiate. This would also be a fitting time to start looking for a replacement vehicle.
4. Is your car owned, financed, or leased?
If it's owned: Find the title to your vehicle, clear out personal belongings in the car, and drop it off at the designated location requested by your insurance company.
If it's financed or leased: Clear out personal belongings in the car, and drop it off at the designated location requested by your insurance company. If you have gap insurance or loan/lease payoff coverage, confirm your insurance will cover what's remaining on your loan or lease.
5. Receive payment and settle the claim.
The insurance company will issue you a check to pay out for your total loss claim (minus your deductible). If your car was financed or leased, the check could be addressed to your lender or made out to both you and your lender for you to sign and send to your financing company.
How do insurance companies value cars?
If you've ever been offered a payout for your totaled vehicle, it's likely that you were curious how they came up with that amount. It's hard to pin down exactly how insurance companies come up with their payout number, as your car's value could vary greatly from one car insurance company to another. However, while the end result can be quite different, the valuation process remains largely the same.
A claims adjuster assesses the damage to your vehicle after an insurance claim is filed. Afterward, they'll factor in your car's age, mileage, and any previous accidents or damage. The company will also look at similar models in your area and consult Kelley Blue Book to get a sense of its pre-claim value. The process is similar for stolen vehicles — though there is obviously no damage to assess. This information is used to ultimately determine the value of your car.
The amount proposed by the adjuster should only be considered an initial offer. Expect this offer to be lower than you think it should be. However, you can take steps to negotiate with your car insurance company to increase the payout amount. Read on to see ways that you can work with your insurer to negotiate for a payout that is closer to the market value of your vehicle.
A claims adjuster will factor in the car's age, mileage, previous damage, as well as comparable values from KBB to determine the value of your car. But, you may be able to negotiate this amount.
Can you dispute a total loss?
If you feel your insurance company undervalued your totaled car, you do have options that may help.
Your insurance company will determine the value of your vehicle as well as the value of the repairs. Make sure the documentation correctly states the mileage, vehicle age, and any additional non-standard features you might have. Next, you’ll want to compare the value listed by your insurance company with other sources. Kelley Blue Book and NADA are good resources for that.
This will further help present your side of the argument that the vehicle was undervalued. Perhaps you had an expensive sound system installed or other top-of-the-line aftermarket features that set your particular vehicle apart from other similar models. If you recently had a set of four brand new tires put on the vehicle, then that might be able to support your argument, as well.
If you're able to find inaccuracies with the report, speak with your car insurance company's claims department or the claims adjuster assigned to you.
What if you want to keep your car?
Sometimes people may want to keep the car, even with its high level of damage, and potentially have it fixed themselves. This process is referred to as "retaining salvage." You'll want to ask the insurance company and check the salvage laws in your state to be sure this is an option since things can vary from state to state. The insurance company will calculate the difference in price between ACV and the salvage value, which is then the amount you would be paid for the vehicle in its current state. The salvage value is what the insurance company would have made on the vehicle if they'd sold it for parts. The DMV will be notified so they can then issue you a new salvage title.
Even if you have the car rebuilt and it looks as good as new again, the salvage or rebuilt title will stay with the car so any potential buyers, later on, would be aware that it had once sustained serious damage and had been repaired.
Totaling your vehicle when you have a loan
If you’re leasing or financing your vehicle, totaling your vehicle can have major implications. Within your lease agreement, you’re required to maintain the vehicle in near-perfect condition. And, as you can imagine, totaling the vehicle falls way outside those lines. Moreover, if you have a loan on the vehicle and the vehicle is totaled, you could find yourself in a situation where you owe more than the vehicle is worth.
Luckily with leased vehicles — and sometimes if you’re financing — your agreement often requires you to carry gap insurance. Gap insurance is designed for situations where the loan on the vehicle is worth more than what your insurance company will pay you for the total loss. Because of the nature of vehicles, your car's value depreciates rapidly the longer you own it. And with most kinds of insurance, you will only be paid the actual cost value of your asset — not what you originally paid for it. So, if your loan is $25,000 and your vehicle is totaled, but you only receive $20,000 because that is what your vehicle is valued at, gap insurance would step in to cover the remaining $5,000.
Gap insurance can be helpful in situations where the loan is worth more than what your insurance company will pay you for the totaled vehicle.
If you do not have gap insurance but Loan/Lease Payoff Coverage, you can also find help. Loan/lease is similar to gap insurance but typically has a coverage cap. So, while gap insurance will cover the difference between what you receive and what you owe, this coverage would only cover a certain percentage of that value. While it can vary by company, Loan/Lease Payoff coverage typically exhausts at 25% of your vehicle's value. Because of this, gap insurance is generally considered a more overarching solution to this problem.
Frequently asked questions: total loss car insurance
Below are some common questions about total loss and auto insurance for your reference. If you have any additional questions, feel free to submit them to our insurance experts here.
If my car is declared a total loss, can I still drive it?
No. Even if you feel your car is in driveable condition after a total loss declaration, it's simply not safe to drive such a damaged vehicle on public roads. If later the vehicle is rebuilt and inspected properly, it will be issued a rebuilt title and may once again be roadworthy.
Will insurance companies cover a totaled or salvaged car?
There is no guarantee that insurers will cover a totaled car — and in fact, it may be difficult to find coverage. Your best bet is to shop around with as many companies as possible before finalizing a purchase or holding onto a salvage title car.
When should I remove the totaled car from my insurance policy?
You can remove the totaled car from your policy once the title or lease is no longer in your name and you've been paid for the claim.
Can I keep my totaled car?
As mentioned above, it depends on the salvage laws in your state, so ask your insurance company about your state's rules. If it's allowed, your insurance provider will still pay out for the claim but the final amount will be adjusted; on top of your deductible, they will likely deduct the amount your car could have sold for at a salvage yard.
Does a total loss have to be from a collision, or could hail cause it to be totaled?
It depends on the severity of the hail damage, but no, a total loss does not have to be strictly after a collision. A weather-related claim would fall under your comprehensive coverage. If you aren't sure if you have comprehensive, reach out to your agent to ask about the details of your coverage.
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