When your car is damaged to the extent that the estimated cost of repairs exceeds the actual cash value (ACV) of the vehicle, it is considered a “total loss.” Dealing with this type of insurance claim requires a bit more effort on your part. So, let’s dive into what you need to know about auto insurance claims associated with a total loss.
Understanding Total Loss and Actual Cash Value Claims
To receive an insurance payout for a car that is deemed a total loss, you must have property damage liability (PD) or comprehensive or collision insurance on your policy. PD is required in every state, but to get paid, you would need to file a claim against another driver’s PD. Additionally, for you to receive PD compensation, the other driver must have been negligent in the accident.
Reading: How insurance determines total loss
The easiest and safest way to get paid for a total loss is through your own insurance company, which can be done through collision insurance. The great thing about collision claims is that it doesn’t matter if you were at fault, although you will have to pay your deductible before the insurer covers the claim.
If you have this type of coverage and are not injured or seeking medical care, your first step after the damage occurs would be to file a claim with your insurer, just as you would for any accident. A claims adjuster will then come to inspect the vehicle and assess the damage. It is during this inspection that the total loss designation will be made.
Determining a Total Loss
If the adjuster determines that the cost of repairing the damage exceeds the ACV of the car, it is considered a total loss. What qualifies as a total loss isn’t always straightforward, as it varies from state to state. Some states have a “total loss threshold” (TLT), where the damage only needs to exceed a certain percentage of a car’s value to be considered a total loss.
Approximately half of the states use what is called the “total loss formula” (TLF), where if the repair cost plus the car’s salvage value exceeds the ACV, it is deemed a complete loss.
What Happens if Your Car is Declared a Total Loss?
If you’re okay with your car being declared a total loss, here are some steps insurance companies like Geico and Progressive typically require you to follow:
- Contact your insurance company immediately.
- Provide all necessary information and documentation.
- Cooperate with the claims adjuster during the inspection process.
- Arrange for the car to be towed, which your insurance company will usually handle.
- Ensure that the DMV is notified of the total loss status.
Depending on your state’s regulations, the car will be classified as “salvage,” and it can be sold to buyers interested in salvage vehicles.
If you wish to keep the wrecked car, either for repairs or sentimental reasons, your insurer may allow it. However, in this case, you will receive less cash. Your payment will be the ACV minus the salvage value of the car. Keep in mind that even though the car is totaled, it still holds value in its parts and has the potential to be restored. Additionally, note that some states restrict drivers from keeping total loss vehicles, while others may require you to obtain a salvage certificate.
If you disagree with the total loss designation, you can try negotiating with the claims adjuster. For example, you can argue that they did not fully consider any modifications you made to the car. In such cases, you will need to provide documentation and evidence proving that the car is worth more than initially determined. If you believe you did not receive fair compensation, you have the option to consult with an attorney to fight on your behalf.
How is Payment Handled for a Total Loss?
The amount you will be compensated for a total loss is the ACV, the same metric used to determine if the car is a total loss. The ACV is determined by the car’s market value before the loss, accounting for depreciation. Ultimately, your car’s ACV will be determined by its wear, age, and other factors relevant to your insurer. It may differ from the numbers you find in the Kelley Blue Book or Edmunds.com, as most major insurers have their own methods for determining ACV.
Once you accept the ACV value, the insurer will pay you that amount if you owned the car outright. However, if your car is leased or financed, the compensation goes back to the leasing or financing company.
Keep in mind that if your leased or financed car is totaled, there’s a good chance you’ll still have a significant amount left to pay. While the insurance company will pay you the value of the car, this value might not reflect what you owe on the lease. If you drive a leased vehicle, it’s worth considering differential insurance, which covers any remaining balance on a lease.
Frequently Asked Questions
Here are some common questions people have regarding total loss car insurance claims:
- Can I negotiate the total loss designation?
- What happens to my car after it’s declared a total loss?
- Can I keep my totaled car?
- How is the compensation for a total loss calculated?
- What if my car is leased or financed?
Remember, each case is unique, and it’s always best to consult your insurance company and familiarize yourself with your state’s specific regulations to ensure you have accurate information for your situation.