What Happens When Your Car Is Totaled?

In this guide

A car is a "total loss" when the cost to repair it, plus other factors, is too high compared with what the car was worth just before the crash. If your insurer totals your car, it generally pays the car's actual cash value (its pre-loss market value) minus your deductible, and takes ownership of the wreck. If you still owe money on a loan, that payment goes to the lender first.

How an insurer decides a car is a total loss

After an accident, fire, flood or theft, the insurer compares two things: what repairs would cost, and what the car was worth right before the loss. Insurers use one of two broad approaches, and which applies depends on your state:

• Total loss threshold. Some states set a percentage of the car's value. If repair costs meet or exceed that percentage, the car must be declared a total loss. The percentage differs by state.
• Total loss formula. Other states have insurers add the repair estimate to the car's expected salvage value. If that sum is higher than the car's actual cash value, the car is a total loss.

Insurers can often choose to total a car even when it doesn't meet the legal threshold, especially if repairs are risky or parts are hard to find. Because the exact rule is set by each state, check your state insurance department for the one that applies to you.

How actual cash value is calculated

Actual cash value, or ACV, is usually described as the replacement cost of your car minus depreciation, or simply what it could have sold for just before the loss. Insurers typically use a valuation report based on sale prices of comparable vehicles in your area. The estimate considers:

• Make, model, trim and model year
• Mileage
• Condition before the loss, including interior, tires and recent major repairs
• Options and features
• Local market prices for comparable cars
• Sales tax and fees, where your state requires the insurer to include them

The payout is generally ACV minus your deductible. For example, if a car's ACV is set at $15,000 and your deductible is $500, you'd expect a settlement of about $14,500 before any other adjustments such as taxes, fees or a loan payoff. These numbers are only an illustration.

If you owe money on the car

When the car is financed or leased, the insurer typically pays the lender (the lienholder) first, up to the amount owed. Any remaining money goes to you. If the payout is less than your loan balance, you still owe the difference to the lender.

This is where gap insurance comes in. It's designed to pay the difference between the car's value and what you owe on the loan or lease, subject to its terms. It may be sold by insurers, dealers or lenders. Read our guide to gap insurance, and see car insurance for leased and financed cars for how lender requirements work.

What happens next: a step-by-step timeline

1. Report the loss and start the claim. See how car insurance claims work.
2. The insurer inspects the car and decides whether it's a total loss.
3. You receive a valuation and an explanation of how the ACV was calculated. Ask for the full report.
4. You review it. Compare it with similar listings and gather maintenance records and photos.
5. You negotiate, if needed, or accept the offer.
6. You sign paperwork. This usually includes the title transfer, power of attorney, odometer statement and a lien payoff authorization.
7. Payment is issued to you, your lender, or both.

Remove personal belongings and license plates (if your state requires) before the car is picked up, and ask the insurer about your rental coverage end date. Rental coverage often has daily and total caps and may end soon after the settlement offer.

If you think the offer is too low

You don't have to accept the first number. Practical steps to consider:

• Ask for the valuation report and check that the trim, options and mileage are right.
• Look at the comparable vehicles listed, and note if they're different in mileage, condition or distance from you.
• Send your own evidence: maintenance records, recent upgrades such as new tires, photos, and listings of truly comparable cars.
• Check your policy for an appraisal clause, which lets each side hire an appraiser if you can't agree.
• Contact your state insurance department if you believe the insurer isn't following the rules.

Our guide to how to dispute a car insurance claim decision goes through these steps in more detail.

Keeping the car, salvage and branded titles

In many states you can choose to keep a totaled car. The insurer then pays you ACV minus the car's salvage value, and the state will usually require the title to be marked as "salvage." A salvage title generally means the car can't be driven legally until it is repaired and passes the inspection your state requires, after which it may get a "rebuilt" or similar title. Rules differ by state, so confirm with your DMV.

A branded title often makes a car harder to insure and harder to resell. Some insurers limit coverage on rebuilt cars. It's wise to ask about coverage before you buy or keep one.

Diminished value and new car replacement

Two related ideas come up after serious crashes:

• Diminished value is the loss in market value after a repaired car has an accident history. Triple-I notes that in most states a driver who isn't at fault can seek it from the at-fault driver's liability coverage (Michigan is an exception), while your own collision coverage generally excludes it. State rules vary. Diminished value is mainly relevant to cars that are repaired, not totaled.
• New car replacement coverage is an optional coverage that may replace a new car with a new one instead of paying ACV, if you bought it. Read new car replacement coverage explained.

Frequently asked questions

Can I get more than the car's actual cash value?

Generally, a standard policy pays ACV. You may get more if the valuation missed features or condition, or if you bought an optional coverage such as new car replacement or an agreed-value policy. Your state may also require the insurer to include sales tax and fees.

Does the insurer have to pay my loan balance?

No. It pays the car's value up to the amount owed, and you remain responsible for any shortfall unless you have gap coverage.

Is a car totaled if the repair is 70% of its value?

It depends on your state. Some states use a percentage threshold and others use a formula, and insurers may total a car at lower levels. Check your state's rules.

Can I buy my totaled car back?

Often you can keep it. The insurer deducts the salvage value from your payment, and the title is typically branded as salvage. Ask your insurer and your state DMV about the process.

Will a total loss raise my rates?

It may if you were at fault, since insurers treat a total loss like any other claim. Whether and how much your rate changes depends on the insurer and your state.

Sources

• Insurance Information Institute – What is diminished value?
• Insurance Information Institute – What should I do if I am having trouble settling my claim?
• NAIC – "Declarations" of Saving
• NAIC – State insurance departments