CarInsurance.com Insights
- A car is considered totaled when repair costs exceed a percentage of its value set by state law.
- Insurers typically pay the vehicle’s actual cash value (ACV), not the original purchase price.
- Drivers can accept the payout, keep the car, repair it or sell it for parts.
- Vehicles declared a total loss usually receive a salvage title, which affects resale value and insurance options.
- If the car has a loan, the insurance payout usually goes to the lienholder first.
What does it mean when your car is totaled?
Insurance companies declare a vehicle a total loss when the cost of repairing it exceeds a certain percentage of the car’s pre-accident value. The exact threshold varies by state.
In many cases, insurers will pay the vehicle’s actual cash value, which is the car’s market value before the accident. The insurer calculates your car’s actual cash value using factors such as:
- Vehicle make and model
- Age and mileage
- Overall condition
- Local market value
If you have collision coverage, the insurer typically pays this amount minus your deductible.
Once the settlement is paid, the insurance company usually takes ownership of the damaged vehicle and sells it at auction for salvage.
How does the insurance company decide if the car is a total loss?
Each state has a total loss threshold. For example, if your state’s threshold is 70%, that means that if the damage equals 70% or more of the car’s value, the insurer will consider the vehicle a total loss. Check out our list of total loss thresholds by state.
Your insurer may decide to total a car before the damage reaches that threshold, especially if they believe more damage will be found during the teardown/repair process. But once the estimate goes over the state’s threshold, it must be declared a total loss.
Option 1: Accept the insurance payout
This is the standard route when your car is totaled. The car insurance company is essentially buying your damaged car from you. They will calculate the car’s actual cash value and offer to send a check with that amount. They will also take the wrecked vehicle and auction it for salvage.
If you go through your collision coverage, they will subtract the deductible from your payout. You may be able to recover this deductible if the other party is at fault. If you go through the at-fault driver’s company, there will be no deductible. However, they will only pay their percentage of fault if there is shared liability.
In either situation, you should know that you can negotiate the payout on your totaled car.
When negotiating, you first need to know how the insurer has determined the value of your car. They will order a report from a third party, which looks at the most comparable vehicles recently sold in your area.
Each vehicle sale price is adjusted to compensate for differences such as options, mileage and condition. Each number is then weighted into a calculation for your car.
They are required to send you a copy of this report. It is vital that you review this report closely. Look for any mistakes, see if they left any options off your vehicle. Check the conditioning ratings.
If you disagree with their assessment, you might supply photos showing what great shape your paint or interior was in. You can also send in receipts for any recent mechanical work.
After assuring all information is correct, look into the comparable vehicles listed. They should at least be the same year, make and model. But there may be differences in options and mileage. Make sure there are adjustments added if your car was well-appointed and/or low mileage.
You can also send them additional vehicles to consider. If you are finding sale listings that skew higher, you can often supply them to the insurance company, and they may be able to add them to their report.
As a last option, you may have an appraisal clause in your policy with your own company. This means you can hire an independent appraiser (at your cost), your insurance will do the same, and the appraisers will decide. Do be aware, this number could be higher or lower than any previous offers.
PROS: You get the most payout, the insurance company deals with disposing of the damaged car and all the paperwork involved, you can buy any replacement car you want or keep the cash.
CONS: Your damaged car is gone; you aren’t guaranteed to find a similar car to buy.
Option 2: Keep the car and repair it
For several reasons, you may want to keep the damaged car. This is called an owner-retain option. The insurance company will deduct the salvage value of your car from the settlement.
For example, they owe you $10,000 for your car, and they would have recovered $1,000 by selling the salvaged vehicle to a wrecking yard. Your owner-retain option would be to accept $9,000 in payment and you keep the damaged car.
You can then spend any amount of that money, or your savings, to fix it. This makes sense if the car is still safe to drive but cosmetic damage has made it a total loss, for older vehicles that hold sentimental value to you, or if the settlement money isn’t enough to buy a replacement car.
Once you repair the car, you must follow your state’s rules to obtain a salvage title. Typically, this title will be branded as “salvaged” or “rebuilt.” Some states require professional repairs and a safety inspection, while others have few requirements.
You should know that getting car insurance on a salvage title car isn’t easy. Some companies won’t insure them; others will only offer liability insurance, not collision or comprehensive.
PROS: You get to keep the car you’re attached to, you don’t have to find a replacement vehicle, and partial repairs might take less money, leaving you with cash left over.
CONS: You get less cash for your total loss, you have to deal with titling and insuring a salvaged vehicle, and you might spend more than the car is worth when repairing it.
Option 3: Keep the car but don’t repair it
Similar to the option above, you may want to keep the car if it is safe to drive and accept whatever cosmetic damage has deemed it a total loss. This is common with scratches, paint damage or severe dents, such as hail damage.
This may also be a good option if the payout from the insurance company isn’t enough to buy a replacement car you would be happy with.
PROS: Minimal investment in the totaled car; you can drive a car with cosmetic damage until you decide to replace it later.
CONS: If your car has mechanical damage, it may not be safe to drive; you still have to deal with titling and insuring a salvaged vehicle.
Option 4: Keep the car and sell it
When the car insurance company takes a totaled car, they sell it at auction. An auto recycler tears it down and sells the usable parts for a profit.
If you feel you are knowledgeable enough to sell the vehicle on your own, you might be able to get that auction price for yourself. This could be a good option if you own a rare or valuable vehicle that would still fetch a reasonable price.
PROS: You have to potentially get more cash for your car; the new owner will be the one to deal with titling a salvaged vehicle.
CONS: You are not guaranteed to make money; you could end up with less cash, and you have to transport and store the damaged car until it is sold.
Option 5: Sell the car for parts
You could also take on the whole process yourself. If you are a professional or hobbyist in the automotive field, you may have the skills and tools required to part out a car. There are many options for selling car parts online, such as eBay, Craigslist or Facebook Marketplace.
This can be a good option if you have an enthusiast car or many aftermarket parts. Car clubs can be great places to find customers, as they are often full of hobbyists with project vehicles. You could also keep any aftermarket upgrade parts for your replacement vehicle.
PROS: You have the potential to get more cash for your car; you can keep any parts you want.
CONS: Very labor intensive, requires storage space and tools, and can take a long time to complete. You will likely need to dispose of the empty frame and damaged parts at the end and report the vehicle as destroyed.
Option 6: Donate the car to a nonprofit
Many nonprofits will tow the car for free and sell it, and you’ll get a tax deduction for the depreciated value. Some services deal with processing the vehicle and let you choose which charity receives with proceeds.
PROS: Support a good cause, let someone else deal with the paperwork and you get a tax write-off.
CONS: You don’t get cash for your vehicle beyond what the insurance paid you.
What happens if you still owe money on the car?
If your vehicle was financed or leased, the insurance settlement usually goes to the lender first.
The payout covers the vehicle’s actual cash value, which the lender applies toward the remaining loan balance.
If the settlement exceeds what you owe, you receive the difference. But if you owe more than the car’s value, you’ll need to pay the remaining balance unless you have gap insurance.
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Can you dispute a total loss decision?
Drivers who believe their insurer undervalued their car may be able to dispute the settlement.
You can challenge the valuation by:
- Reviewing the insurer’s vehicle comparison report
- Providing evidence of upgrades or recent repairs
- Showing listings of similar vehicles with higher prices
Some policies also allow you to hire an independent appraiser to help resolve disputes.
Frequently Asked Questions: Totaled cars
What does it mean when a car is totaled?
A car is considered totaled when the cost to repair it exceeds a certain percentage of its value, based on state law or insurance formulas.
Do I have to accept the insurance payout?
No. You may have the option to keep the vehicle, repair it yourself or sell it instead of accepting the full settlement.
What is a salvage title?
A salvage title indicates the vehicle was declared a total loss due to significant damage.
What happens if I still owe money on my car?
Insurance usually pays the lender first for the vehicle’s value. If the loan balance is higher than the payout, you must pay the remaining amount unless you have gap insurance.
Can I keep my totaled car?
In many cases, yes. However, the insurer may reduce your payout by the vehicle’s salvage value and the car may receive a salvage title.
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