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Totaled Cars: The Insurance Consequences

Jason Metz

After a bad accident, you may be left wondering if you have a totaled car. If the car cannot be repaired so it's safe to drive, or the cost of repairs is high compared to the vehicle's value, your insurance company might declare it a total loss.

Determining the point at which a vehicle is a "total loss" depends on the insurance company and/or the state. Common methods include:

Total loss threshold: The car is a total loss if repairs costs exceed a certain percentage of the car's actual cash value (ACV). This threshold is often 70% to 80% and is usually determined by the state.

Total loss formula: If the state doesn't set a "total loss threshold," an insurance company might use a formula like this: Cost of repairs + salvage value > actual cash value. This is saying that the repairs costs plus salvage value must be more than the value of the vehicle. If they're not, the vehicle will be considered totaled.

What system does your state use? Here's a list from the law firm of Matthiesen, Wickert & Lehrer, S.C.

Insurance companies typically look at various factors to determine the ACV for a car, including:

  • The year, make and model.
  • Mileage.
  • Pre-loss condition.
  • Recent sales prices of similar vehicles in your area.
  • Any major options, such as leather interior.
  • The resale value of the parts and metal, known as the "salvage value."

How do I file an insurance claim for a total loss car?

There are two common ways to file a claim for a totaled car.

  • If you have collision and comprehensive insurance and one of them covers your accident damage, you can make a claim on that coverage. Your insurance check will be reduced by the amount of your deductible.
  • If someone else caused the accident, you can typically file a claim through their liability car insurance. In this case there's no deductible.

Once you reach a total loss car insurance settlement with the insurer, you'll generally transfer the car's title to the insurance company and it will dispose of the car at a salvage yard.

Depending on whether you owned, financed or leased the vehicle, the settlement payment typically goes to:

  • You if you own the vehicle.
  • The leasing company if the vehicle is being leased.
  • The finance company that's listed on your policy or car title, if you're making payments on the vehicle. If the settlement is more than you owe on the vehicle, you receive the remainder of the money.

If the insurance check is less than what you still owe on the vehicle or lease, you're responsible for paying the balance of the car loan or lease. Gap insurance can cover the difference between what you owe and the insurance money for the totaled car.

Can I keep my totaled car?

In some states you may be allowed to keep a totaled car and the insurance company will adjust the settlement amount. Typically, this would be the settlement amount minus the salvage value and your deductible. For example, if the settlement amount is $10,000, salvage value is $1,000 and you have a $500 deductible, your settlement would be adjusted to $8,500.

But be aware of potential problems. If you keep a totaled car, it will likely get a salvage title. Generally, a car with a salvage title must be repaired, pass a state inspection and then receive a "rebuilt title" before it's deemed safe to be driven on public roads. Some insurance companies will offer only limited coverage types (or not any coverage) for vehicles with rebuilt titles.

An independent insurance agent can help you find insurance for a car with a rebuilt title.