New vehicle prices have increased in the past few years. The cost of repairing a car after an accident has also increased.
Modern vehicles are built with more sophisticated and expensive parts than in the past. Airbags, onboard safety devices, cameras and related components are all expensive to replace. Because of this, a vehicle that appears fixable could be deemed a total loss. And a car can be totaled even if it only sustained minimal body damage.
What it means when your car is "totaled"
Generally, a car is considered totaled when the cost to repair it exceeds its value. Even though the damage may appear minimal, repair costs can quickly add up. Your car may also be considered totaled if it can’t be safely repaired. Some states even have laws that require your insurance company to consider the vehicle a total loss based on the extent of the damage it sustained.
For example, assume your insurance company determines the value of your vehicle is $10,000. The repair shop estimates the repairs at $10,000 with “open damages,” meaning the cost could be higher once repairs start. In this situation, your insurance company would likely consider the vehicle a total loss. They would cut you or your lienholder a check for the car's value, less your insurance deductible.
How does your insurance company determine your vehicle’s worth?
Imagine you purchased a brand-new vehicle for $26,000. But that was several years ago. Since then, the value of your vehicle has depreciated. Your insurance company doesn’t consider the original purchase price of the vehicle, but rather what you would get if you sold your vehicle today.
The insurance company considers several factors:
- Mileage
- Condition
- Tires
- Additional parts or equipment
The insurance adjuster uses these details and local research to arrive at the actual cash value (ACV) of your car.
Some states also allow for the collection of sales tax and title registration during this process.
Ask us how your insurer determines ACV. You can also research similar cars that have recently sold in your area and present that data to the adjuster for consideration.
When your car isn’t paid off, gap insurance can help
Sometimes, a car is totaled and the insurance settlement doesn’t fully pay off the loan. For instance, say you financed a $30,000 car over 60 months. The vehicle was totaled shortly after you purchased it, and its value is now $25,000. The problem is you still owe $27,000 on the loan, resulting in a $2,000 difference.
The final insurance check is mailed directly to your lender, since there is a lien on your vehicle. Your lender then sends you a bill for the $2,000 difference. How do you pay it?
The answer is guaranteed asset protection (gap) insurance. Gap insurance can protect you from owing more than what your car is worth. If you don’t have gap insurance, you’ll need to work with the lender to pay off the loan balance.
Can you keep your car after it's been declared totaled?
In most situations, your insurance company will sell your totaled car to a salvage yard. But if you want to keep the car, you might be able to. Get bids from local salvage yards for your vehicle and present those bids to your insurance company. Together, you can come up with a fair market value for the salvaged vehicle, and your insurance company can deduct that amount from your vehicle settlement.
For example, imagine your vehicle’s value is determined to be $10,000. It has a salvage value of $500. You decide to keep it. In this scenario, you would get a final settlement of $9,500.
Keeping a salvaged vehicle involves a few stipulations:
- Your state might require you to license it as a “salvage title.” This informs future buyers about the car's history and condition, even if you’ve made the necessary repairs.
- Insurance companies might limit the types of coverage they will provide on the vehicle.
Contact us for a gap insurance quote
If you have questions about what happens when a car has been totaled or how to obtain gap insurance, call us. We're here to help.