Total Loss Car Insurance
Learn the ins and outs of car insurance after an incident resulting in a total loss.
Total loss insurance coverage
If your car has been declared a "total loss" after an accident, it can feel overwhelming, but knowing how your insurance handles it can make things easier. A car is considered totaled, or a total loss, when the cost to fix it is more than it’s worth. In this case, your insurance company will determine what your car was worth before the accident by looking at its age, mileage, and condition. They’ll offer you that amount minus your deductible.
This guide will break down the process step by step, from how the value is calculated to what you should do next, helping you understand everything more clearly so you can confidently move forward.
Key Takeaways:
- Salvaged cars can be repaired and given a rebuilt title, but they might be harder to insure.
- Whether your car is considered a total loss depends on your state’s rules, either by a set percentage or a specific formula for the car.
- A car can be totaled through a collision claim, comprehensive coverage, or the other driver’s insurance if they are at fault.
- If your car is leased or financed, there might be extra steps, and gap insurance can be helpful in these situations.
- If you have liability-only coverage, you won't get paid for a total loss on your own vehicle.
What exactly is a total loss?
A total loss vehicle is one in which the repair costs outweigh the value of the car. You'll hear this referred to differently, such as salvage title, salvage car, total loss car, or rebuilt title. Although there are specific differences with some of these terms, it all generally means that a car had major damage at one point in its history. If a car is totaled and then repaired, the state issues a new title, labeled as either rebuilt or salvaged, so this is shared with any potential future buyers.
What determines if a vehicle is a total loss depends on the state. Generally, there are two main approaches: some states use a total loss threshold (TLT) and others use a total loss formula (TLF).
In TLT states, here’s how it works:
- The insurance adjuster will estimate the total cost to repair the car and figure out its scrap value.
- Then, they’ll calculate the car’s actual cash value (ACV), which is what it was worth before the accident.
- If the repair costs plus the scrap value are equal to or greater than the ACV, the car is declared totaled.
Keep in mind that the ACV is usually less than what you originally paid for the car. While this might feel disappointing, it’s because your car’s value decreases over time due to depreciation. The longer you’ve owned the car, the more its value drops.
A total loss threshold (TLT) is a guideline used by some states to decide when a car is considered "totaled" after an accident. In TLT states, if the cost to repair the car reaches or exceeds a certain percentage of the car’s actual cash value (ACV), it’s declared a total loss.
For example, if your state’s total loss threshold is 75%, and your car's ACV is $10,000, the insurance company will declare the car totaled if the repair costs are $7,500 or more. The exact percentage varies by state, but once the repair costs hit that threshold, the car is considered a total loss.
Specific state information
The table below outlines each state and its threshold for totaling a vehicle, and identifies the states that use the total loss formula to calculate damage after a claim. The total loss formula (TLF) 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.
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.
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.
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Do a VIN check: Always check the vehicle history report using the VIN (vehicle identification number) to see if the car has been salvaged. This step is essential for any car you're considering buying, regardless of the title status.
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Get it inspected: Never buy a car without having it inspected by a trusted mechanic. This ensures that all repairs were done correctly and no hidden problems exist. some states, such as New York, require an inspection.[1]
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Obtain total loss and repair details: Ask for the original total loss declaration and repair information to determine the vehicle's damage and the repairs made.
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Do your research: Compare the car’s value on resources like NADA or Kelley Blue Book. If buying from a private seller, research them to avoid potential issues related to salvaged vehicles.
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Get insurance quotes in advance: Use the VIN to get insurance quotes before purchasing, as insuring a salvaged car can be tricky. Make sure you can secure insurance to legally drive the vehicle after buying.[2]
Yes, you can get insurance on a car with a salvage title, but it can be more difficult (and will likely only be liability coverage). If a car has been totaled and you want to insure it again, it must be considered "road worthy" and safe after repairs. Some insurance companies won't offer full coverage for a salvage title vehicle because of its high level of prior damage. Save yourself time and energy by being upfront about your car's salvage history so you'll quickly learn whether an insurer can help you.
Find the policy with the best coverage for your specific needs.
The settlement process after a car is totalled
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?
When an insurance company declares a car totaled, they determine its actual cash value (ACV) to figure out how much to pay you. The ACV is the car's market value before the accident, accounting for its age, mileage, condition, make, model, and recent sales of similar cars in your area. The insurer also considers depreciation, which means the car’s value decreases over time. Once the ACV is calculated, the insurance company will subtract any applicable deductibles from the payout amount. This is the amount you’ll be offered as a settlement for the totaled vehicle.
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 you can work with your insurer to negotiate for a payout closer to your vehicle's market value.[3]
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.
If you have paperwork documenting changes or improvements you've made to the vehicle, 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 keep their car even if it's heavily damaged and fix it themselves. This is called "retaining salvage." If you're considering this, check with your insurance company and your state's salvage laws, as the rules can vary. The insurance company will calculate the difference between the car's actual cash value (ACV) and its salvage value, which is the amount they’d have received if they sold the car for parts. You'll be paid this difference, and the DMV will issue a new salvage title.
Even if you fully repair the car and it looks brand new, the salvage or rebuilt title stays with the vehicle, meaning future buyers will know it was once seriously damaged and 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 covers the difference when your car loan is higher than the amount your insurance pays for a totaled vehicle. Since cars lose value quickly over time, insurance only pays the car's actual cash value, not what you originally paid. For example, if you owe $25,000 on your loan but your car is valued at $20,000 after it's totaled, gap insurance would cover the $5,000 difference.
If you don’t have gap insurance but have Loan/Lease Payoff Coverage, you can still get some help. This coverage works similarly to gap insurance but usually has a cap. While gap insurance covers the full difference between what you owe and what your car is worth, Loan/Lease Payoff Coverage only covers a percentage, often up to 25% of the car’s value. Because of this limit, gap insurance is usually seen as a more comprehensive option.
FAQs: total loss car insurance
Below are some common questions about total loss and auto insurance.
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Should You Buy a Car With a Rebuilt Title? Consumer Reports.
Used Cars. FTC
Determining your car's value and cost of repairs. III
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