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What Happens When Your Car Is Totaled?

The sudden and unexpected trauma of a car accident is stressful enough. Learning that your car, the trusted vehicle you rely on every day, is beyond repair can feel like adding insult to injury. Now what?

This article will walk you through what to expect when your car is declared a total loss, how insurance comes into play, and the steps you can take to navigate this challenging situation.

Understanding "Total Loss"

When an insurance company declares your vehicle a total loss, it means the cost of repairs exceeds a certain percentage of the car's actual cash value (ACV). This percentage is often determined by state law and is sometimes referred to as the total loss threshold.

This situation might leave you wondering about the value of your car and how your auto insurance will handle this. Depending on your state's total loss threshold, your insurance adjuster might declare your car totaled. If you're wondering "Why did my car get totaled?", the cost of repairs is too close to or exceeds the value of the vehicle itself.

Dealing with Insurance

Navigating your insurance coverage after your car is totaled can be a complex process. When your vehicle is totaled, several types of insurance can come into play:

  • Collision Coverage: If you're at fault for the accident, your collision insurance will cover the ACV of your totaled vehicle, minus your deductible.
  • Comprehensive Coverage: If your car was damaged due to reasons other than a collision (like theft or natural disasters), comprehensive coverage comes into play.
  • Liability Insurance: If another motorist caused the accident, their liability coverage handles property damage, including the ACV of your totaled vehicle.
  • Uninsured/Underinsured Motorist Coverage: If an uninsured or underinsured driver is at fault for an accident, this coverage from your insurance applies.
  • Gap Coverage: If you owe more on your car loan than the insurance payout, gap insurance can be a lifesaver. When there's a gap between what you owe to your lender and your car's worth, gap coverage can bridge that financial difference.

Determining Actual Cash Value (ACV)

Your insurance adjuster determines your vehicle's actual cash value (ACV) based on numerous factors. These factors include your car's:

  • Age
  • Mileage
  • Overall condition

The insurance adjuster may refer to resources like Kelley Blue Book or look at the prices of similar models at local dealerships to discern the value of your car.

For example, suppose you bought your car three years ago for $25,000. Assume that, due to depreciation, your car's current market value is $15,000. Now assume that repairs post-accident are estimated to cost $12,000.

Your insurance company, after assessing the value of your vehicle, offers you a payout of $14,000. After subtracting your deductible (let's say that's $1,000), you receive $13,000 as a payout for your vehicle's fair market value. This amount may not be enough to purchase a replacement car comparable to your old one. This is particularly true if you still owe a significant amount on a car loan.

Rental Cars

Many car insurance policies include rental car reimbursement. This benefit covers the cost, or part of the cost, of a rental car for you while your insurance claim is processed.

There might be a limit on the daily cost and the total number of days subject to coverage. If the accident wasn't your fault, the at-fault driver's insurance company might cover the rental car cost.

Purchasing a New Vehicle

Your insurance payout can be used as a down payment for a new car. Depending on your totaled car's ACV and any remaining loan balance, the payout might not cover the total cost of a comparable replacement vehicle.

On the flip side, if your vehicle was older and you owned it outright (with no ongoing car loan), your insurance payout might suffice for a down payment on a newer model or cover the purchase of a similar pre-owned vehicle. 

Shop around. Consider certified pre-owned options. Negotiate with the dealership to make the most of your insurance payout.

Potential Setbacks After Your Car Is Deemed Totaled

Be aware of the following potential challenges when deciding how to proceed after your vehicle is deemed a total loss after an accident.

  • Salvage Titles: If you decide to keep and repair your totaled vehicle, it will likely have a salvage title. A salvage title acts as a warning to future buyers that the car has been in a serious accident. A salvage title reduces the motor vehicle's market value a great deal.
  • Increased Premiums: After an auto accident, especially if you were at fault, expect your car insurance premiums to rise.

Seek Legal Advice

Has your vehicle been deemed a total loss after an accident? Do you believe your insurance company's offer isn't fair? Are you facing challenges recovering your losses? 

Consider consulting a car accident lawyer if your car was totaled. An attorney can guide you through the claim process, ensuring your rights are protected and getting you back on the road.

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