Totaled. We’ve all heard the word, and we all know it indicates a car is seriously wrecked, but what does it really mean? Well, most insurance companies consider a car a total loss when it has been damaged so badly it can’t be repaired safely, or repairing the vehicle will cost more than the car is worth, or the car’s damage exceeds the state’s regulations for how much damage an automobile can sustain and be legally repaired. If any of this ever applies to your car, you’re going to need to know what happens when your car is totaled.
Whenever you’ve been in an automobile accident, always contact your insurance company right away and file a claim. This sets the company in motion to take care of you as soon as possible. If your car is declared totaled, your insurance company will inform you. If you have a loan and bought gap insurance (more on this a bit later) have your lender file a claim to cover any difference in the settlement amount and the declared value of the car. If another driver is at fault, file a third party claim with their insurer to cover the difference.
What it really comes down to is how much your car is worth on the open market. Let’s say you’re driving a 1999 Lexus RX 300 worth around $5,000 and you’re in what for all intents and purposes would generally be considered a minor accident. However, it’ll cost $6,500 to fix your car. To your insurance company, that’ll be a total loss. Conversely, if you’re driving a 2015 Lexus RX 350 with a base price of $40,795, in the overall scheme of things, $6,500 will look like next to nothing. Your insurance company will definitely elect to repair it.
Depending upon your coverage, your insurer usually pays the cash value of your car. This is defined in most cases as what it would sell for on a dealer’s lot. This includes taxes, license fees, and any other transfer of ownership fees. Evaluating the condition of the car before the accident and consulting a guide like Kelley Blue Book to get an idea of the fair market value of the car is part of the process for establishing this. However, rather than relying upon your insurance company’s valuation, you should be prepared to counter the insurer’s valuation if necessary.
Most insurance companies compare the prices of similar vehicles in your area, and then—as we mentioned before—consider the shape your car was in before the accident. They look at the mileage on the car’s odometer, consider any optional equipment your car has on it, and assess any pre-existing damage you may have incurred to the car. Based on these factors, and taking into consideration standard pricing guidelines, the insurer will then make you an offer on the car. But just because they make an offer, you aren’t required to accept it. You can counter their first offer.
When your car is declared totaled, you basically become the seller of a used car. A wrecked used car—to be sure, but a used car nonetheless. Remember, they’re obligated to pay you what you could have sold the car for before it was wrecked—less your deductible and salvage fees. So do what you’d do if you were selling your car—research its value. The used cars section here on the Autobytel Website will provide you with the information you need to come up with an accurate valuation. Once you have it, you can better negotiate your settlement.
Since everything hinges on the cost of repairs versus the value of your car, it may be useful for you to obtain your own estimates of the costs of repairing your car. In some cases, mitigating circumstances may make it worth repairing a car even though it has been declared totaled. Or, you simply may not agree with the assertion the car is a total loss. With your own estimates in hand, if the insurance company’s estimate is based on its own inspection, rather than an estimate from a qualified repair facility, you have evidence to dispute the estimate.
If you have a loan on the car, your insurer will pay your lender the negotiated value of the car. If your loan balance is more than the car is worth, you’ll be required to pay off the balance of the loan—out of your own pocket—unless your loan contract has gap insurance included. This covers the difference between the balance of the loan and the cash value—if it is less. If the car is worth more than the loan balance, the difference comes to you and can be applied toward getting you into your replacement car.
In some cases, you can elect to keep your car, even after an insurance company has declared it totaled (if your state’s laws allow). Even though a repair might cost more than the car is worth, it might still be a perfectly serviceable automobile. Or, you might even be really good with tools and elect to repair the car yourself. Either way, if you’d like, you can keep the car. In that case, your insurance company will pay you the value of the car, less your deductible and the amount a salvage company would have paid them for it.
If you do elect to keep the car, and want to continue to drive it, you’ll have to register it as a salvage vehicle. Once you do this, your state’s DMV will issue the car what is known as a “salvage title”. That way, if you ever decide to sell it to someone else, they’ll know it was in an accident and declared a total loss by an insurance company. And yes, this will have an effect on what you can sell the car for subsequently. It isn’t always a deal breaker, but you won’t get full market value.
If your car is declared totaled and you let it go, get the license plates and all of your personal property from the car. Leave the keys with the vehicle or make arrangements to get the keys to the appropriate person at the insurance company (usually your claims adjuster). If you have an outstanding loan on the automobile, contact your finance company and let them know you’re signing the car over to your insurance company. Make sure your adjuster has the account number and contact information for the finance company. Complete all documentation, and shop for your next car.