How Car Insurance Treats a Total Loss

Whether a car is worth repairing will depend on the damage and your state laws

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.

Key Takeaways

  • Your car may be considered a total loss if the cost to repair it after an accident exceeds the value of the car.
  • A vehicle may also be considered totaled if it meets certain criteria set by the state.
  • If another driver was at fault, their property damage liability insurance should cover a totaled car.
  • If you were at fault in an accident, your collision insurance should cover you if you’ve purchased that optional coverage.
  • You may be responsible for the difference between what the insurer pays you and how much you still owe if you have a loan or a lease.

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.)

In most states, drivers must have at least $10,000 in property damage liability coverage, and many states set the minimum at $25,000. You can buy more liability coverage than your state’s minimum.

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.

Important

If you have a car loan or lease and total your car, you may get less money from your insurance company than you owe your lender. However, you’ll still be responsible for paying the loan or lease.

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.

What are signs that a car is totaled?

A car is often technically totaled when the cost to repair its damage is more than it’s worth. Some signs that a car could possibly be totaled are that you cannot drive it, it’s leaking significant amount of fluids, or the frame is severely bent.

Will my insurance pay off my car if it’s totaled?

Whether your insurance will pay if your car is totaled will depend on several factors. Typically, auto insurance will pay for the value of the car, minus any deductible you owe. The car must be declared officially totaled. Then, once you receive payment, you can shop for a new vehicle.

How does a totaled car affect my credit?

A totaled car will not affect your credit, even if the accident was your fault. Your credit score is based on several factors related to your payment history, including how much debt you have, how long you’ve had credit, and how reliably you have made payments on time. Keep in mind that if you don’t pay your car loan for any reason, including whether it is related to a totaled car, your credit score will likely take a hit.

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.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. State Farm. “Total Loss Claims.”

  2. New York State Department of Financial Services. “Salvage Vehicle Branding.”

  3. New Hampshire Insurance Department. “2022 Automobile Insurance Consumer Frequently Asked Questions,” Page 5.

  4. Virginia Department of Motor Vehicles. “Insurance Requirements.”

  5. National Association of Insurance Commissioners. “2018/2019 Auto Insurance Database Report,” Pages 219–225 and 236 (Pages 225–231 and 242 of PDF).

  6. National Association of Insurance Commissioners. “A Consumer’s Guide to Auto Insurance,” Page 9 (Page 15 of PDF).

  7. Consumer Financial Protection Bureau. “What Is a Credit Score?

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