- A car is considered totaled if the cost to repair it is more than its market value.
- Due to depreciation, the value for your totaled car will be less than what you originally paid for it—even if it’s new.
- If you total a leased car, gap insurance can ensure your car loan is paid off.
- You may get more money trading in your car at a dealership than you would from your insurance company.
No one ever wants to hear their car is totaled, but remember that if your insurance provider deems your car totaled, what it means is that your car will cost more to repair than what it’s worth—so your insurer sees it as a “total loss.” This is the case if your car is an older model or has extensive damage.
And it might not be as bad as it sounds. It doesn’t mean that you’re at a total loss financially. There are options for you in this situation. Understanding your auto insurance in the event of your car being totaled, what goes into determining if a car is totaled and the basic steps to follow afterward can make the process a little easier. Here’s some information to help you in getting what you can for your car and getting back on the road.
What determines if a car is totaled?
The first phone call you should make after an accident (following family, friends or a tow) is to your insurance company to file a claim. Once the claim has been started, your insurer will have an inspector or body shop take a look at the damage and prepare an appraisal.
The appraisal will determine how much it will cost to repair your vehicle. You’d probably expect your insurer to cover any damages, but if they’re severe or your car isn’t worth much, it could cost more to repair it than it’s worth. “Total losses are generally declared once the vehicle repairs reach 75% of the value of the vehicle,” says Jimmy Spears, head of the automotive division at Tractable, a company that handles auto insurance claims. But this often varies depending on the state you live in.
With a totaled car, instead of paying for the repairs, you’ll get reimbursed for the actual cash value of the car before the accident. Keep in mind that this payout will include a reduction in value for depreciation. So the value will be less than what you paid for the vehicle—even if it’s a new car.
Below are a few things you can do in response to a totaled car diagnosis.
1. Get a Payout From Your Insurance Company
Once your insurance company has declared that your car is totaled, they will arrange to transport the car to a salvage auction, where an inspector will document the vehicle’s condition and report back to the insurance company.
“To receive an accurate valuation of the vehicle and secure the best payout, be certain to have any supporting documents of maintenance and receipts for things like new tires,” says Spears. “Collecting this information will provide you a better negotiating position when the insurer calls to settle your claim.” Keep in mind that they are purchasing the car from you for the value prior to the total loss event, which includes depreciation.
Once you have settled with the insurer, you will receive your cash value in a lump sum. The lump sum from insurance may help pay for a down payment on a newer car. Then you can take a loan out on the rest, paying monthly car payments until the loan is paid off.
Tip: If you feel like the amount offered by your insurer is too low, you can contest it and ask for it to be reevaluated. However, there’s no guarantee they will increase their offer.
2. Look Into Repairing the Car
If the damage to your car is minimal, you may be able to repair it and still drive it rather than taking a check from the insurance company. Not all totaled cars are undrivable, and if your financial situation would make it hard to find a car to replace your totaled one, repairing it may be the best option for you.
However, you need to make sure that the car is still considered safe to drive according to the insurer. It’s not worth risking your life to save a few bucks by driving a car that could seriously injure you, or worse.
Being able to keep your car even if your insurer says it’s totaled will also depend on your state’s laws. If you are able to keep it, you won’t be able to drive it right away. You will have to have it repaired, pass inspection and obtain a rebuilt title before you can get back on the road.
3. Trade In Your Car
You might be able to get more money trading in your car than from your insurance company. Some car dealerships will allow trade-ins on totaled cars if they can be repaired and resold for enough of a profit.
If you’re ready for a new car, this could be an opportunity to take a chunk of change off a newly purchased vehicle. Spend some time shopping around to find a dealer who is willing to take a totaled car as a trade-in—and for a good price.
Tip: If you don’t have the need or budget for a new car, look into your used options. You may be able to find a low-cost car and pay for it outright, depending on the size of your insurance payout.
4. Keep the Car for Parts
If you collect or repair cars for a living, or know someone who does and is willing to pay you for parts, it may be worth keeping your totaled car. You can use the parts for other projects to save money or sell the parts yourself.
5. Sell the Car to a Junkyard
Another option is to look into selling your car to a junkyard. Before agreeing to a sale, it’s a good idea to call around to several junkyards to get quotes on what they’re willing to pay for your vehicle. Read online reviews as well to find out how the junk dealer has handled the process and the customer experience. If you see too many negative reviews, it’s best to try another junkyard.
Once you’ve agreed to an amount for your car, the junkyard will schedule a time to pick it up. Make sure you remove all your valuables from the car before it’s hauled away. And confirm with the dealer that you’ll receive payment upon pickup.
6. Donate the Car
Many charities will accept old cars as donations, including Goodwill and local National Public Radio stations. You can get a tax write-off by donating your car, and your chosen organization will make money to help fund operations by taking the car to an auto auction and keeping the proceeds. Some organizations, like Vehicles for Veterans and 1-800-Charity Cars, donate the car directly to those in need. If you are planning to donate for a tax write-off, the latter allows you to write off the full fair market value of your car, maximizing the value of your contribution.
What if you have a lease or loan?
“If you have a loan, that means you and the bank own the car,” explains Spears. “You negotiate for the value and retain any equity once the loan is paid to the bank. The bank will send the title to the insurance company.”
The situation is similar if your car is leased. In this case, the leasing company owns the car. If you total a leased car it’s a good idea to consult with the leasing company as soon as possible.
There’s also the possibility that the check from your insurance provider isn’t big enough to pay off your car loan or lease; in that scenario, you’re responsible for paying it off yourself.
One way to avoid paying out of pocket is to have gap insurance. This type of policy covers the remaining balance of your auto loan if the value of your car is insufficient to pay off your loan. While it won’t help you if you’ve already totaled your car, it’s something to look into for your next purchase. Gap insurance covers other situations, too, so it might be worth considering just to give you more peace of mind. For instance, if your car is stolen, gap insurance could kick in. Premiums are relatively inexpensive (according to the Insurance Information Institute, $20 a year is not uncommon), though you get the best rates when you first purchase your car.