As youâre driving home, you turn your attention to a text message for a few seconds and, when you look up, youâre horrified to see that youâre about to drive straight through a traffic barrier and are heading for a tree. Itâs too late to swerve, so you hit the brakes and brace for impact.
Luckily, youâre not injured, but the front of your car is completely wrecked. Once the authorities arrive, you overhear them saying that your car is âtotaledâ. What exactly does this mean?
We all dread being in this situation, and few of us know what to do when it happens. In this article, we outline when your car is considered totaled, whether this will be covered by your auto insurance, and what it might mean for your auto loan.
When Is a Car Considered Totaled?
A car is considered totaled when itâs impossible to repair, or when fixing it will cost you more than buying a new car. Just like a doctor declares a person deceased, your insurance company will declare your car totaled.
If youâre involved in an accident, itâs hard to believe that your car might have taken its final drive. However, even if it appears to be in great shape on the outside, your car may still be totaled due to crucial parts being badly damaged..
Letâs return to the example above, where your car has taken a knock. Your car insurance company will declare whether itâs worthwhile to fix your car or to flag it as totaled.
They will first calculate your carâs actual cash value (ACV) before the accident. Letâs assume that the ACV of your car was $12,000 before the incident occurred.
Your insurer will then compare this figure with the cost of the damages to determine whether itâs worth salvaging.
For example, if the damages amount to $5,000, then it would make sense to fix your car rather than write it off. On the other hand, if the damages amount to $15,000, then your insurance company will make a loss of $3,000 if they fix it.
Key Point: How to Calculate the Actual Cash Value of Your Car The actual cash value of your car is the amount that you purchased it for, minus the amount that it has depreciated by. For example, if you purchased your car for $20,000 and it depreciated by 40% from the time youâve bought it, it will be worth $12,000 today. |
Itâs important to note that your insurance company may choose to class your vehicle as totaled, even if repairing it would cost less than its ACV. This is because your mechanic may find additional damage once theyâve started repair work.
Your insurerâs decision will depend on the kind of damage your car experienced.
Letâs say after having crashed into the tree, it seemed as though the damage was only limited to the front of your car. This would cost around $10,000 to repair.
However, while the mechanic does the work, they realize that your carâs alignment is off and that the electrical system has also been damaged. The final cost then gets pushed up to $14,000, which is $2,000 above the actual cash value.
To help you determine whether your car is totaled, or to prepare you for the day it may reach the end of its road, here are some signs to keep an eye out for:
1. Your car is older than five years and has bad damage to its frame
After owning your car for five years, its value will already have decreased by 60%. This is because cars are known to be depreciating assets.
The moment you drive them out of the car dealership, their value immediately decreases and this continues until theyâre considered totaled.
Key Point: What Is a Depreciating Asset? This is an accounting term thatâs used to describe an asset that decreases in value. It can apply to many itemsâsuch as cars, appliances, equipment, and electronics. |
Imagine you get rear-ended by another driver who wasnât paying attention to the road. When you talk to the mechanic, you find out that your vehicleâs frame has been bent and its structural integrity compromised.
Since itâs older than five years, your ACV has already reduced by 60% and, like most of these cases, the repairs will cost a lot more than it would to simply replace your car.
2. Your car is leaking fluids and you canât drive it
After making your way to your car after a long day at the office, you notice that thereâs liquid running out from under it. You get onto your knees and confirm that itâs been leaking fluid.
This is a bad sign because it usually signals expensive damage that your insurance company may not be willing to pay for.
You decide to drive straight to the mechanic, but when you try to start your car, it refuses to work. These are two signs you should dread: leaking fluid and failing to start. Both of these may cost more than the actual cash value of your vehicle to repair, which means that your insurance company may declare it totaled.
3. Your car has driven too many miles
After your car has reached 150,000 miles, it may start to degrade quickly and you should consider replacing it before it loses all of its value. Very few cars manage to reach 200,000 miles, since they usually break down before they hit this benchmark.
If your car passes the 150,000 miles mark and it takes on any additional damage, your insurer may flag it as a totaled car rather than try to have it fixed.
This is because it has already lost most of its value through driving long distances and having it repaired will likely cost more than having it replaced.
4. Your car is too old to take any more damage
Vintage cars will increase in value as they get older because of their rarity, special attributes, and performance. However, if youâre driving a regular car and itâs just celebrated its 20th birthday, thenâbesides holding sentimental valueâitâs likely worth very little.
If you have the bad luck of being involved in a fender bender with your old car, it may be the final nail in the coffin. Instead of being taken to the mechanic, your insurance company may suggest that you take it straight to the scrapyard to salvage the parts rather than have it repaired.
5. Your car is considered totaled according to your state
Different states may also have laws dictating when a car is totaled. For exampleâif you live in Alabama, your stateâs law may deem your car totaled if the cost to repair it is more than 75% of its value. In Arkansas, itâs 70% and in Florida, itâs 80%.
However, the majority of states donât specify a percentage. Instead, they consider a car totaled based on a comparison between the damage done and the carâs actual cash value.
How Is a Totaled Car Covered by Insurance?
Your auto insurance company will most likely pay you the ACV of your car when itâs declared totaled. They will then repossess your vehicle and, in return, you will receive a check for its value.
However, this whole process will depend on the kind of insurance through which youâre making a claim. There are four insurance options:
1. Liability coverage
If youâre hit by a drunk driver and youâre fortunate enough to survive (40% of accidents involving drunk drivers are fatal), you may still have to deal with the administration of a totaled car.
The majority of U.S. states require drivers to have liability coverage in order to drive on the roads. This offers two main categories of protection to third parties, such as yourself.
Firstly, the drunk driverâs property damage coverage will pay for the ACV of your vehicle if itâs been totaled and, secondly, bodily injury coverage will pay for your medical bills if youâre injured.
Your own liability cover will not kick in because youâre not responsible for the accident. Therefore, you will receive a check from the other driverâs insurance company, and your own insurance will remain untouched.
2. Uninsured or underinsured motorist property damage
If you live in New Hampshire, the state doesnât require you to have car insurance. Drivers from here have to prove that they can handle the financial responsibility of having a car.
However, paying the ACV of your totaled car may cost them far more than maintaining their own vehicle insurance.
For example, if the actual cash value of your car is $15,000 and theirs is $5,000, then this New Hampshire driver may not be financially able to cover the cost of your totaled car.
In this situation, you will have to pay for the damage yourself, unless you have uninsured motorist property damage (UMPD) cover. This is additional car insurance that you can take out that will step in when a driver whoâs responsible for an accident canât pay the bill.
Instead of spending years trying to retrieve the money from them, you can simply claim from this additional coverage.
3. Collision coverage
If youâre the at-fault driver during a car accident and your car is totaled, then your collision insurance will be able to cover the cost of your lost vehicle. This kind of car insurance will pay for damage to your vehicle when youâre responsible for an accident.
Letâs say youâre driving through the middle of town with your grandchildren sitting in the back. Itâs been a busy morning and theyâre shouting to get your attention. For a second, you look away from the road to make sure theyâre okay, and before you know it, youâre heading straight for a pole.
To your relief, they’re both unharmed. However, the same canât be said for your car. Since itâs already over five years old and you notice that the frame has been damaged, you realize that itâs likely totaled.
This accident was your fault, which means that you need to claim from your collision coverage. Once your claim has been approved, your insurance company will pay you the ACV of your totaled vehicle.
4. Comprehensive coverage
Finally, if your car is totaled for any reason other than a collision, then your comprehensive car insurance will cover the actual cash value of your vehicle.
This kind of insurance takes care of your costs during a number of covered incidents, such as when your car is stolen, damaged by natural disasters like floods and hurricanes, or crushed by falling objects.
Imagine youâre driving along a quiet forest road in the evening. The weather is calm and youâre enjoying the peaceful scenery. However, without any notice, a deer jumps out from the forest line and runs in front of your car.
Besides getting a fright, youâre safe and sound. Your vehicle, on the other hand, has been severely damaged, andâwith its mileage above 150,000âyou realize it must have been totaled.
Since it will be classified as an animal accident, your comprehensive coverage will step in.
Are There Policy Limits for a Totaled Car?
The amount that an insurance company will pay depends on whether or not youâre claiming from someone elseâs liability coverage.
This is because liability cover has policy limits for three categories: bodily injuries per person, bodily injuries per accident, and property damages per accident. For example, your insurance provider may have the following policy limits on your liability coverage:
- $50,000 is allocated for bodily injuries per person.
- $100,000 is allocated for bodily injuries per accident.
- $30,000 is allocated for property damages per accident.
If we return to our example where youâre hit by a drunk driverâbut this time, letâs imagine that youâre driving an expensive vehicle that has an ACV of $40,000.
If the drunk driverâs liability coverage is limited to $30,000 for damage to your property, then you will have a shortfall of $10,000.
In this situation, you will either have to pay the additional amount out of pocket orâif you have itâyou will have to rely on your underinsured motorist coverage.
However, if youâre claiming from your own collision coverage or comprehensive coverage, the policy limit will usually be the ACV of your car. In other words, there wonât be a limit.
This is because youâre likely paying a high premium to fully cover the expensive vehicle that you own.
Who Will Get the Insurance Check When a Car Is Totaled?
Your insurance will likely pay out the ACV of the car youâve driven when it got totaled. However, depending on who owns the car, you may not be the recipient of this check.
If you borrowed money to finance your car and you havenât paid off the full amount yet, then it still technically belongs to your car loan provider. This means that your insurance will pay them the actual cash value of your car rather than extending the check to you.
In some cases, this may leave you with debt on a car you are no longer able to drive. For example, letâs imagine you purchased a car through vehicle finance for $20,000 and you still have to pay off $10,000.
If your insurer pays your lender $8,000 as the ACV of your car, then thereâs a $2,000 shortfall that youâd still need to pay.
To help you during these situations, you can take out gap coverage. This additional insurance steps in when your main insurance doesnât cover the full cost of an event.
Key Point: What Is Gap Insurance?  Gap cover is a short-term insurance policy that assists you when thereâs an insurance shortfall from your main insurance policy. It will pay the difference between what your insurance pays and whatâs left on your bill. For example, if your insurance is willing to pay $400 on a $500 bill, then your gap cover will pay the remaining $100. |
On the other hand, if youâve already paid off your car or purchased it in full, then your insurance company will pay you directly for the ACV of your car.
Under these circumstances, you can also choose to keep your car. Your insurance company will then issue you a slightly smaller check that doesnât include your carâs remaining value.
In other words, your insurer will calculate your carâs salvage value, which may be $3,000, and then minus that from its ACV, which might be $8,000. You will then receive $5,000 rather than the original $8,000âbut you will get to keep your car.
What to Do after Your Car Is Totaled
It can take time for insurance claims to be settled. You should, therefore, get started with the claims process as soon as possible.
If your car is totaled, you should follow these steps:
- Call your insurance company immediately: As soon as youâre able to, reach out to your insurance company and let them know what happened. If youâre not responsible for the auto accident, reach out to the other driverâs liability insurance company.
- Have your car towed: Your insurance company may be partnered with certain repair shops, which means that itâs easy for them to approve the work that needs to get done. Find out which repair shops your insurer has a relationship with and try to have your car taken there. This might speed up the process.
- Get your paperwork in order: If your car is totaled, you may have to sign over your carâs title to your insurance company. If so, either get the correct documents together or request them from your stateâs Department of Motor Vehicles (DMV).
- Find out what your carâs ACV is: Your insurer will determine the ACV of your vehicle. However, itâs good to do your own research beforehand so that you can verify the amount they offer.
- Do the math on your car loan: If youâre still paying off your new car loan, find out how much money you still owe so that you can be prepared to pay any shortfall, or find out whether your gap insurance covers it.
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Unlike our examples, you and your passengers have a high risk of being seriously injured during a car accident that leads to a totaled car.
This will likely be your main focus, and the last thing youâd want to worry about is being able to replace your totaled car.
By taking out decent car insurance coverage, you will be able to focus on what really matters while your car insurance company’s policies take care of the rest.
If youâre worried that youâre not properly covered, simply enter your zip code at the top of this page to get a range of affordable quotes from top car insurance companies.
At CheapInsurance.com, weâve got you covered!
