Learn the ins and outs of car insurance after a total loss.
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 stressful during an already stressful time. The actual meaning of total loss, how it’s determined, if you can disagree with its determination, and what comes next are all questions that arise after a vehicle has been totaled, and fortunately, these are the questions we'll answer. Let’s get started.
A total loss determination 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:
In total loss threshold states, outlined here, 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. Iowa has the lowest threshold, meaning the least dollar amount needed to total the vehicle at 50% where as Texas has the highest at 100%.
The remaining states, Alaska, Arizona, California, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Minnesota, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, South Dakota, Utah, Vermont, and Washington are "total loss formula" states.
After you vehicle has sustained a significant loss, your car insurance company will evaulate the vehicle and determine if it's a total loss.
If you feel your insurance company undervalued your vehicle, you have some 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.
If you're able to find inaccuracies with the report, speak with your car insurance company's claims department or the claims adjustor assigned to you.
If you’re leasing or financing your vehicle, totaling your vehicle can have major implications. Within you 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 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, they lose value very quickly. 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 $25k and your vehicle is totaled and your receive $20k because that is what your vehicle is valued at, gap insurance would step in to cover that $5k.
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 as 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 vehicles value. Because of this, gap insurance is generally considered a more overarching solution to this problem.
A salvaged vehicle, otherwise 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 this vehicle as it has been deemed unsafe for public use.
If you or your insurance company decide to repair the vehicle, get it re-inspected and registered, it will be branded a salvaged or rebuilt vehicle. This does have some insurance implications. Because of the nature of salvaged vehicle titles, lots of insurance companies will flat out deny you coverage. The risk they present, even if they have been rebuilt, is deemed too much for insurance companies.
Your best bet for finding insurance after a salvaged vehicle is to be upfront with your title. This way you don’t waste your time with companies that won’t work with you. An insurance company will find out if the vehicle has been totaled and repaired anyway, so there isn’t much use in withholding this information.
Salvaged vehicles tend to be a lot cheaper than non-salvaged ones. Because of this, they have a great allure to 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.
If a vehicle has been salvaged, it will be listed on the vehicle’s car history report which you can check via the VIN or vehicle identification number. You should do this with any vehicle you're thinking of busying, regardless of the title status.
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.
This will help determine what actually happened to the vehicle to better understand the repairs made in step 2.
If you’ve made it this far with the vehicle, compare the value of the vehicle to what’s listed on NADA 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. See if there are any red flags in his or her past concerning selling salvaged vehicles.
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.
If you live in one of the states listed below, a vehicle will be determined a total loss if they value of the repairs is greater than the percentage listed in the right column.
Total Loss Threshold States and Values
|State||Value needed to Total Loss|
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