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Kelley Blue Book: What to do if your car is totaled

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Accidents happen. A driver is late to pick up their daughter from daycare, runs a stop sign, and crashes into your car. A storm sweeps through town, uprooting the tree in your front yard, which lands on top of your car. Then boom, your vehicle is totaled.

If you have auto insurance, you’d probably expect your insurer to cover the damage. Luckily, they will if the repairs cost less than what the car is worth. But if they will cost more to repair than what it’s worth, the insurer will declare the vehicle a total loss. The company will then reimburse you for the actual cash value of the car — not the total cost of the repairs.

Here’s how it works.

What is a totaled car?

Insurance companies “total” a car when the cost to repair the damage exceeds the vehicle’s market value. They may also declare it a total loss if it would be unsafe to drive even if you fix it. If the insurer totals your car, they will pay you the vehicle’s actual cash value (ACV). The actual cash value is how much it was worth just before the loss. It includes a reduction in value for depreciation, so the ACV will be less than what you paid for the vehicle, even if it’s relatively new.

When is a car considered totaled?

It depends on the insurance company and where you live. Each state sets the threshold for declaring vehicles a total loss — but carriers may choose to use a lower threshold. In many cases, the insurance company will total a car even if the repair costs are less than the vehicle’s actual cash value — sometimes a lot less. That’s because it can be difficult to determine the full extent of the damage before repairs begin.

For example, in Arizona, the state threshold for totaling a car is 70% of its ACV. Let’s say you have a vehicle that’s worth $10,000. Under state law, the insurer must declare it a total loss if the cost of the damage is $7,000 or more. But if the insurer’s threshold is 60% of the ACV, it will be totaled when repair costs are $6,000 or more.

“The reason that some carriers [use a lower threshold] is because when you’re adjusting a vehicle, and you’re looking at it after a loss, it’s still together. And all you can see, for the most part, is the exterior of the vehicle and the undercarriage. When the body shop takes the vehicle apart and pulls the panels back, they typically find more damage,” said Josh Damico, vice president of insurance operations at Jerry, a car insurance comparison service.

If the body shop finds more damage after they begin the repairs, they file a supplement with the insurance company for the additional damage. “Some carriers have an idea of what supplements are going to look like on a damaged vehicle. They consider this upfront when determining when they will declare a vehicle a total loss,” he said.

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What insurance covers a totaled car?

The type of insurance coverage that kicks in if your car is totaled depends on the circumstances of the loss. Here are four kinds that might cover a total loss.

  • Collision: Kicks in if you’re in a crash with another car or immovable object, such as a fence or lamppost. Read our story on collision insurance.
  • Comprehensive: Covers non-crash-related damage caused by many different things, including severe weather, vandalism, theft, animals, and more.
  • Property damage liability: If you’re in an accident and another driver is at-fault, their property damage liability coverage should pay for the damage to your vehicle — if they’re insured.
  • Uninsured/underinsured motorist: Your uninsured/underinsured motorist property damage liability should cover you if you’re in an accident where the at-fault driver is not insured. If you don’t have this type of coverage but have a collision, it will pay for the repairs.

If you have a loan or lease, the lender will probably require you to maintain collision and comprehensive. Otherwise, these coverages are optional in every state.

You could skip them, but if you only have liability coverage to meet your state’s minimum insurance requirements, you’re putting yourself at risk. Liability coverage only pays for injuries and damage you cause to someone else. It won’t cover repairs to your vehicle if you’re at fault in an accident or have non-crash-related damage.

Also see: Why is this modest car such a magnet for thieves?

How GAP insurance can help

If you have a loan or lease, you still have to pay your lender even if your car is totaled and you can no longer drive it. However, the insurance company will only pay the actual cash value of the car at the time of the loss. Since vehicles depreciate quickly, that may not be enough to pay off what you owe if you’re leasing or financing the purchase of your car — especially if you put little or no money down.

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You’ll be responsible for making up the difference unless you have GAP coverage. GAP covers the difference between the amount you owe on your loan or lease and what the insurance company pays. Many policies even cover your collision or comprehensive deductible.

How does the insurance company determine a car is a total loss?

To determine whether a car is a total loss, the insurance company must calculate the vehicle’s actual cash value immediately before the loss occurred and estimate the amount of damage. Most insurers work with a third-party vendor that aggregates vehicle data to determine the ACV. The insurance company will then send an adjuster to inspect the damage and estimate the repair costs.

If the damage exceeds the threshold set by the state or insurance company for totaling a car, the insurer will declare it a total loss. If this happens, the carrier will reimburse you for the actual cash value of the vehicle.

Even if you get into a car crash and your vehicle is not completely totaled, your insurance company may still pay for your repairs.

Also read: These are the cars that cost the most and least to insure

Can I keep my totaled vehicle?

You might be able to keep a totaled vehicle, but it depends on your state’s laws. “The best way to start this process is to talk to your carrier about purchasing the totaled vehicle back,” Damico said. If you can buy back the car, you’ll need to contact your local DMV to find out what forms you need to complete and the steps to take to start the purchase.

If you’re allowed to keep the car, you won’t be able to drive it right away. “Once a car is deemed a total loss, it has to be repaired, pass inspection, and ultimately you’ll be given a rebuilt or a salvaged title for the vehicle,” Damico said. You’ll need to provide the title and proof of inspection to the DMV to register the car so you can drive it on the road.

And don’t forget about insurance. You can’t legally drive without it in most states. However, you may be limited in the types of coverage the insurance company is willing to sell you. “Some insurance companies only insure salvaged, or rebuilt-titled vehicles for liability only. They wouldn’t cover it for comprehensive or collision coverage because it’s difficult to assess the current condition of the vehicle,” Damico said.

If you don’t plan on driving your totaled vehicle, you may also be able to:

  • Keep it and use it for parts on another car or sell the parts for extra cash.
  • Sell it to a junkyard or salvage yard.
  • Donate it to a local charity.

See: This is what might really happen to your donated car

How can I total my car out?

You can’t. Insurance companies decide whether to total a vehicle based on what it’s worth and the extent of the damage. If the vehicle’s repair cost exceeds a certain percentage of its actual cash value, the insurer will declare it a total loss. If it doesn’t exceed the threshold, the insurer won’t total it.

How much can you expect from insurance for a totaled car?

It depends on the vehicle. When an insurance company totals a car, it pays the vehicle’s actual cash value immediately before the loss occurred. The ACV factors in depreciation, which includes wear and tear, mileage, and previous accidents, so the reimbursement amount will be less than what you paid for the car.

You can use the settlement money from the insurance company to help you buy a new vehicle. However, it won’t be enough to cover a new version of the same car you’re currently driving unless your insurance policy includes new car replacement coverage.

If you don’t think the insurance company’s payout is fair, you can dispute it. But the insurer isn’t just going to take your word for it that the car is worth more than their estimate. So, you’ll need to do some research. You can check sources like Kelley Blue Book and gather information about what similar cars are selling for in your area. Present the information to the adjuster and see if you can come to an agreement.

“If you can’t resolve it with the adjuster, you can go out and hire a private appraiser,” Damico said. But you’ll have to pay for it out of pocket. If the appraiser’s estimate is higher than what the insurance company offers, you can use it to negotiate. If not, you may have to accept the insurer’s offer.

Steps to take when your car is totaled

If your car is totaled, there are a few steps to take to settle your claim and get back on the road.

  • File a claim. Contact your insurer to file a claim just as you would if you were in a fender bender.
  • Assess the damage. The insurance company will send an adjuster to assess your vehicle’s damage. The adjuster will conduct a visual inspection to estimate the cost of repairs.
  • Know your car’s fair market value. The insurer will use the actual cash value of your car immediately before the damage to decide whether to declare your vehicle a total loss. You can get an estimate of your car’s fair market value from tools like Kelley Blue Book or by checking to see what similar cars are selling for in your area.
  • Contact your lender (if applicable). If you have a loan or lease, your vehicle is what is securing your financing. So, you need to let the financing company know about the damage — and you must continue making your payments. If you stop, it could negatively affect your credit, making it more challenging to get financing for a new vehicle. When the insurance company settles your claim, they’ll send payment to the lender or leasing company.
  • Negotiate the claim with the insurer. If you think the insurance company’s assessment of your car’s ACV is too low, you can negotiate the payout. But you’ll need to show why your car is worth more than what the insurer is offering.
  • Shop for a new car. The payout you receive from the carrier likely won’t be enough to buy a new version of your old car. But you can use it to make a down payment on a new vehicle.

This story originally ran on KBB.com.

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