What Actually Happens When Your Car Is Totaled?

Hearing that your vehicle has been “totaled” after an accident can bring up a lot of questions.

A total loss can be confusing, especially if you've never been through the process before.

While every claim is different, understanding the basics can help you know what to expect.

Here's what generally happens when an insurance company determines that a vehicle is a total loss.

What Does “Totaled” Actually Mean?

A totaled vehicle isn't necessarily one that is completely destroyed or impossible to drive.

Generally, an insurance company may determine a vehicle is a total loss when repairing it doesn't make economic sense based on factors such as the vehicle's value, estimated repair costs, salvage value, and applicable state requirements.

This is why a vehicle can sometimes look repairable but still be considered totaled.

Modern vehicles can also be expensive to repair. Damage to sensors, cameras, electronics, airbags, and other components can add up quickly, even when the outside of the vehicle doesn't look severely damaged.

Who Decides If Your Car Is Totaled?

The insurance company handling the covered physical damage claim generally makes the total-loss determination based on its evaluation of the vehicle and applicable requirements.

After the claim is reported, an adjuster or appraiser may evaluate the damage and obtain or review a repair estimate.

The insurance company will also determine the vehicle's value immediately before the loss. If the claim meets the applicable criteria for a total loss, the carrier may decide to total the vehicle rather than pay to repair it.

Your insurance agent can help explain the process and communicate with you, but the agent does not determine whether the vehicle is totaled or how much the insurance company will pay.

How Does the Insurance Company Determine What Your Car Is Worth?

One of the biggest misconceptions about a totaled vehicle is that insurance will automatically pay enough to purchase a brand-new replacement.

That's generally not how a standard auto policy works.

For a covered total loss, insurers typically look at the vehicle's actual cash value immediately before the loss, subject to the terms of the policy.

Factors used to determine that value can include things like:

• Year, make, and model

• Mileage

• Vehicle condition

• Features and options

• Local or comparable vehicle values

• Prior damage

  
  

The exact valuation process can vary by insurance company and claim.

This is also why the amount you originally paid for your car isn't necessarily the amount it is worth at the time of a claim.

What Happens If You Still Have a Car Loan?

This is where total-loss claims can get especially confusing.

If you finance your vehicle, your loan balance and your vehicle's value are two separate numbers.

For example, suppose you still owe $24,000 on your auto loan, but your vehicle's actual cash value is determined to be $20,000.

Your standard auto insurance coverage doesn't automatically increase the vehicle's value to cover the extra $4,000 you owe.

When a lender has a financial interest in the vehicle, the claim payment will generally account for that interest. If the covered settlement is more than the loan payoff, the remaining amount may go to you. If it's less than the amount you owe, you could still be responsible for the remaining loan balance.

That's where GAP coverage may become important.

What Is GAP Coverage?

GAP coverage is designed to help with certain differences between what you owe on a financed or leased vehicle and the amount covered by your auto insurance after a total loss, depending on the specific GAP product and its terms.

For someone who owes significantly more on a vehicle than the vehicle is worth, this coverage can make a major difference after a total loss.

However, GAP coverage isn't automatically included with every auto policy, and it can also be offered separately through lenders, dealerships, or other providers.

If you're financing or leasing a vehicle, it's worth knowing whether you have GAP coverage and how yours works before you need it.

What Happens to the Totaled Vehicle?

In many total-loss claims, the insurance company takes possession of the vehicle as part of settling the claim, and it is later sold as salvage.

There may be situations where an owner wants to keep the vehicle instead.

Depending on the circumstances and state requirements, that may be possible, but it can affect the amount of the settlement and may create additional title, registration, inspection, repair, or insurance considerations.

If you're interested in keeping a totaled vehicle, talk with the adjuster before making any decisions.

What About a Rental Car?

A totaled vehicle doesn't automatically mean you'll have a rental car paid for until you purchase another vehicle.

Rental reimbursement is generally an optional coverage, and how long it applies depends on the policy and circumstances of the claim.

If you have rental reimbursement coverage, ask your adjuster how your coverage works and when the rental must be returned.

Knowing the deadline can be important because the covered rental period may end shortly after a total-loss settlement is offered or reached, depending on the policy and carrier.

What Should You Do After Your Vehicle Is Declared a Total Loss?

Once you've been notified that your vehicle is totaled, make sure you understand the settlement and what is needed from you.

You may need to:

• Remove personal belongings from the vehicle

• Provide keys or other requested items

• Complete title or ownership paperwork

• Communicate with your lender or leasing company

• Review the vehicle valuation

• Return a rental vehicle within the required timeframe

• Begin looking for a replacement vehicle

  
  

If something about the valuation doesn't look right, review the vehicle information carefully. Make sure the mileage, trim level, options, and other relevant details are accurate, and ask the adjuster questions if something doesn't make sense.

Where Does Your Insurance Agent Fit In?

A total-loss claim involves a lot of moving pieces, and it can be difficult to know who you're supposed to contact about what.

The claims adjuster handles the claim investigation, valuation, and settlement on behalf of the insurance carrier. Your insurance agent can help you understand your policy, answer coverage questions, and help explain the process along the way.

Your agent can also help when it's time to insure your replacement vehicle.

At HB Insurance, we want our clients to understand what's happening with their insurance, especially when they're dealing with an accident or claim.

Being Totaled Doesn't Mean the Process Has to Be a Total Mystery

If there's one thing to remember, it's that what you paid for your vehicle, what you still owe on it, and what it's worth at the time of a loss can all be different numbers.

That's why understanding your physical damage coverage, deductible, rental reimbursement, and GAP coverage before an accident can be so important.

You may not be able to predict when an accident will happen, but you can make sure you understand your coverage beforehand.

And if you have questions about what your auto policy includes, ask us. That's what we're here for.