How Car Insurance Treats a Total Loss

If your car is damaged in an accident and the cost to repair it is more than the car’s actual value, it may be considered “totaled.” This can be the case if the insurance company decides it can’t be repaired safely or if it meets other requirements specified by your state.

Learn how to tell when your car is totaled and what steps to take with your damaged vehicle.

What Is a Total Loss?

For a vehicle to be declared a total loss by an insurance company, it must meet one of several criteria:

• The car costs more to repair than its actual cash value. For example, State Farm says it bases actual cash value on the car’s “year, make, model, mileage, overall condition, and major options—minus your deductible and applicable state taxes and fees.”
• The insurer determines that the car cannot be repaired so that it will be safe to drive.
• A state’s auto insurance laws can dictate when a car is considered totaled.

State insurance laws and insurance companies have formulas for determining whether a car should be considered a total loss. Many states use a “total loss formula”—if the cost of the repairs plus the salvage value of the car exceeds what the car was worth before the accident, then it will be considered a total loss.

Some states set a “total loss threshold”—the damage only needs to exceed a certain percentage of the car’s value for it to be considered a total loss. In New York, for example, the threshold is 75%. So, if the cost of repairs plus the car’s salvage value exceeds 75% of its actual cash value, then the car is a total loss for insurance purposes.

How to File an Insurance Claim for a Total Loss

If your car was totaled in an accident in which another driver was at fault, you can file a claim with that person’s insurance company. Your own insurance company may help you through the claims process. In every state except New Hampshire and Virginia, drivers are required to carry at least a certain minimum amount of property damage liability coverage. (Both New Hampshire and Virginia have a financial responsibility law requiring that drivers without insurance can prove that they could cover any damage they might cause.)

On the other hand, if you were at fault (or no other driver was involved), you will file a claim with your own insurance company. To do that, you must have collision or comprehensive insurance as part of your policy.

Collision insurance covers damage to your car in an accident with another vehicle or an object such as a tree or guardrail. Comprehensive covers damage from causes other than a collision, such as fire, wind, flooding, vandalism, or a falling object.

Both comprehensive and collision insurance are optional. They both have deductibles, which is the amount you must pay before your insurer will pay. For example, if you have a $500 deductible and your car is totaled in an accident, your insurer would deduct $500 from your insurance settlement.

Insurance Company’s Decision

Whether you or another driver were at fault, the insurance company will assign a claims adjuster to inspect the damage to your car and determine whether it is a total loss.

If you disagree with the adjuster’s assessment, you can first try to resolve the matter with your insurance company. If you can’t come to an agreement with the insurer, talk to the consumer services personnel at your state insurance department. If that doesn’t work, and the amount of money involved is substantial, consider hiring a private attorney or a public adjuster to help press your case.

A Total Loss on a Financed or Leased Car

If you own your car without an outstanding car loan, you can simply file a claim. When the insurer cuts you a check, you can put the money toward the purchase of another car or use it for other purposes.

If you still owe money on the totaled car, the situation is more complicated, especially if your car is relatively new. Because new cars depreciate quickly in the first few years of ownership, it’s not uncommon for the balance on a car loan to be higher than the car’s actual value. So, in addition to whatever you receive from the insurance company, you may have to pay for your loan out of pocket. You will also be responsible for the difference if you owe more on your lease than you receive in an insurance settlement.

For both loans and leases, one way to protect yourself is to purchase gap insurance. This insurance is designed to cover the gap between what the insurance company will pay and what you owe.

The Bottom Line

Determining whether or not to repair a damaged car often depends on whether the car is considered a total loss. If it’s a total loss, then your best move in most cases is to file a claim for any coverage provided by your insurance, and then purchase another vehicle.