What is Total Loss after a Car Insurance Claim?

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A damaged car is declared a "total loss" when the estimated cost of making repairs exceeds the actual cash value (ACV) of the car. This type of claim is slightly different from other, more minor claims and requires a bit more effort on the part of the insured person. Here's what you need to know about car insurance claims associated with a total loss.

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Total loss claims and actual cash value

To get an insurance payout for a car that is a total loss, you must have either property damage liability (PD) or comprehensive or collision insurance in your policy.

PD is mandatory in every state, but the only way to receive a payout from it is to file a claim against another driver's PD. For you to get compensation, the other driver will need to have beennegligent in the accident.

The easiest and surest way of getting payment for a total loss is through your own insurance company, which you can do through collision insurance. With collision claims, it does not matter whether you were at fault (you have to pay your deductible before the insurer will cover the claim though).

Assuming you have these types of coverage in place — and that you are not injured or busy seeking medical care — your first step after the damage occurs would be to file a claim with your insurer as you would for any accident. A claims adjuster will come to inspect the vehicle to assess the damage. It is here where the total loss designation will be made, if necessary.

If the adjuster determines that the cost to repair exceeds the actual cash value, or ACV, of the car, then it is considered a total loss. What constitutes a total loss is not always simple, and how it's determined actually varies among states. Some states go by a "total loss threshold" (TLT), where damage only needs to exceed a certain percentage of the car's value to be declared a total loss.

About half of states use what is called the "total loss formula" (TLF), where the car is considered a total loss if the sum of the repair costs plus the salvage value of the car exceeds the car's ACV

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For example, if you lived in Oklahoma and crashed your Toyota Camry valued at $4,800 in Oklahoma, at least $2,880 (60%) worth of damage would qualify the car as a total loss. If you live in Colorado, though, there would need to be at least $4,800 worth of damage for the car to be considered a total loss.

What happens if your car is declared a total loss?

If you agree with your car being a total loss, here are a few things that auto insurance companies, such as Geico and Progressive will require you to do:

  • Remove your license plates and personal items
  • Leave the key with the claims adjuster
  • Send in any additional keys
  • Fill out the associated paperwork
  • Contact the leasing company, if you lease your car

The quicker you do all of these things, the faster and smoother the process will go. After a total loss designation, the car is usually taken by your insurance company, which then notifies the department of motor vehicles that the car has been totaled. Depending on the state, the car can be declared "salvage," and any buyers who specialize in salvaging vehicles can purchase the car from the company.

If you want to keep the totaled car — for example, to repair it or for sentimental reasons — your insurance company may allow it. If you go that route, you'll get less cash. Your payment will be the actual cash value, minus the value of the car as salvage. Even totaled, a salvaged car will still have some value in its parts and the potential to be restored. Geico tells customers to be aware that some states prevent drivers from keeping total loss vehicles, while others will require you to obtain a certificate that states the car is salvaged.

If you disagree with it being a total loss, you may try to negotiate with the claims adjuster. For example, you might make a case that they did not fully account for any modifications you made. You will be required to submit documentation and any proof showing the car is actually worth more than previously determined. If you feel you are not adequately compensated, you may bring the case to a lawyer to fight on your behalf.

The amount you'll be compensated for a total loss is the ACV, which is the same metric used to determine if the car is a total loss. The ACV of the car is determined by its pre-loss market value, less depreciation from when it was new. Ultimately, the ACV of your car will be determined by its wear and tear and age, along with other factors your insurer deems relevant. It is very different from the number you would find on Kelley Blue Book (kbb.com) or edmunds.com. Most large insurers have their own method of determining the ACV.

Once you agree to the value, the insurer will pay you that amount, if you owned the car. If your car is leased or financed, then the compensation goes back to the leasing or financing company.

If you total a leased or financed car, there is a good chance you still have a decent amount left to pay. While the insurance company will pay you for the value of the car, it is very likely the value has depreciated and does not reflect the amount you agreed to lease. If you drive a leased vehicle, you should consider taking out gap insurance, which would cover you for any remaining balance in a lease.

Frequently asked questions

What is a total loss in car insurance?

A total loss occurs when your car is damaged badly enough in a crash that it would cost more to repair the car than it would to replace it. A total loss also applies if your car is stolen, as long as you have comprehensive coverage.

What happens when my car is a total loss?

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