What happens if my car is declared a total loss?

When your car is declared a total loss, also known as being totaled, it means the cost to repair it exceeds its pre-accident actual cash value (ACV). Essentially, it’s the threshold at which it’s not worth it for the insurer to pay for repairs when it would cost less to simply pay out the ACV. A car may also be deemed a total loss if the insurance company determines that it can’t be driven safely even after being repaired.

In practice, the total loss threshold varies by state and by insurer. States have different regulations around what percentage of a car’s ACV the repair estimates must meet or exceed in order to be deemed a total loss.

In some states, a vehicle may be declared a total loss when repair costs reach only 50% to 60% of its value. Even in states with higher legal thresholds, insurers may still total a vehicle if the cost of repairs, the vehicle’s salvage value, and other factors make repairing it uneconomical.

Several different coverages may come into play if your car is damaged — it depends on the cause of the damage.

• Comprehensive: In general, your car insurance provider will only pay for repairs to your vehicle if you have comprehensive and/or collision coverage on your policy. These would also apply for total loss determination, since this takes the place of repairs. Comprehensive, specifically, kicks in for damage caused by non-collision events, such as vandalism or weather, as well as theft.
• Collision: If you get into an accident — regardless of fault — and your car is totaled, a payout would be covered under collision coverage.
• Property damage liability: If you’re in an accident caused by their insurance policy, property damage liability coverage would cover damage to your car, up to their coverage limits. If their policy is insufficient or the claims process is delayed, you can file a claim under your own collision coverage (if you have it) and let your insurer seek reimbursement from the at-fault driver’s insurer.
• Uninsured motorist property damage (UMPD): There are two types of uninsured motorist coverages: bodily injury and property damage. UMPD is not available in all states, but if you have it on your policy, it may kick in if your car is totaled by a driver without insurance.

The total loss process involves assessment of damage, financial settlement, and the purchase of a replacement vehicle.

A total loss claim begins the same way as any other insurance claim: You file a claim with your insurance company, which sends an adjuster to assess the damage and estimate repair costs. Based on the inspection and repair estimate, the insurer will then determine whether the vehicle qualifies as a total loss.

If your insurance company deems that your vehicle is a total loss, you can expect to go through the following general steps:

1. Settlement

You can expect a payout for the car’s value instead of repair costs. Your insurer will calculate a settlement based on its actual cash value, which considers factors such as the vehicle’s age, mileage, condition, options, and local market values.

If you have new car replacement coverage, you’ll get a payment for the cost of a new model instead of its depreciated value. If you filed the claim under your own collision or comprehensive coverage, you can expect your deductible to be subtracted from the payout.

What Happens if You Have a Loan or Lease?

If your vehicle is financed or leased, the insurance company will usually issue the payment directly to the lender or leasing company. If the settlement exceeds your remaining loan balance, you’ll receive the difference. If you owe more than the vehicle’s actual cash value, you’ll usually be responsible for paying the remaining balance, unless you have gap insurance.

2. Transfer Ownership

After accepting the settlement, you can expect to sign over the vehicle’s title to the insurance company. The insurer then takes ownership of the totaled vehicle and usually sells it to a salvage auction. Depending on your state, you may have the option to keep the vehicle, though your settlement will usually be reduced by its salvage value.

3. Purchase a Replacement Vehicle

Once the claim is finalized and payment is issued, you can use the settlement toward purchasing another vehicle. If you had new car replacement coverage, the settlement should cover the full amount of a new car of the same make and model as the one totaled. If you’re financing a replacement, you’ll need to get a new insurance policy before driving it. Comparing quotes from multiple insurers can help you find the best coverage and rate for your new vehicle.

If you believe that your insurer’s settlement offer is too low, you don’t have to accept it immediately. Carefully review the offer and gather information to support a higher valuation.

• Review the insurer’s valuation. Ask your insurer for a copy of the total loss valuation report. Check that it accurately reflects your vehicle’s features, including year, make, model, trim level, mileage, and condition.
• Gather supporting evidence. If you think your vehicle is worth more than the insurer’s estimate, you’ll need convincing evidence. This may include getting a valuation by an independent appraiser if you feel it’s worth the cost, as well as recent maintenance records, receipts for upgrades, and multiple listings for similar vehicles currently for sale in your area.
• Negotiate. If you notice any errors or have solid evidence that your vehicle was worth more than the insurer’s estimate, contact your claims adjuster and submit a formal counteroffer. Providing clear documentation will be more likely to lead to productive discussion than simply disputing the amount.
• File a complaint. While your claim hopefully won’t come to this, you can file a complaint with your state’s insurance department or regulator if you believe your insurer has handled your claim unfairly. Before taking this step, make sure you’ve documented your communications with the insurer and attempted to resolve the dispute directly.

While you can keep a totaled car, you will face an adjusted insurance payout and complex titling requirements.

You can typically choose to keep your vehicle after it’s been totaled if you wish to, but in most cases, it doesn’t make financial sense. You’ll need to inform your insurer that you want to keep the car, and it will adjust the amount of the payout. You can expect to get the car’s ACV minus the salvage value (which is what the insurer would have made selling it for scrap parts) and your deductible.

You’ll need to get a salvage title for your car, which indicates that it’s been deemed a total loss by the insurance company. Generally, you will not be able to drive the car with a salvage title, so keep that in mind. If you get the car repaired, it will then need a new title, typically referred to as a rebuilt or prior salvage title. States have their own requirements for what this entails, but it usually means your car will have to pass various safety tests. These titles can be difficult to obtain.

Having your vehicle declared a total loss doesn’t automatically mean your insurance premium will increase — what matters more is the cause of the loss, as violations like at-fault accidents can result in a rate increase regardless of whether your car was totaled.

If your vehicle was totaled in an accident that you caused, your insurer may increase your premium at renewal because you’ve filed an at-fault claim. The amount of the increase varies by insurer and factors such as the severity of the accident, your driving record, and any previous claims.

A total loss is never a fun experience, but understanding your insurance policy and how the claims process works can make it easier to navigate. Always do your due diligence to be able to evaluate whether your insurer’s settlement offer is fair, and be prepared to propose a counteroffer if you believe your payout should be higher. Including new car replacement coverage on your policy can also provide additional financial protection if your vehicle is ever declared a total loss.