You’ve likely heard the word “totaled” used when referring to car accidents. While you may think it merely refers to the fact that a vehicle was “totally” destroyed in an accident, a “totaled car” actually refers to the value of the vehicle and the cost of repairs.
Specifically, if a car is “totaled,” it means the cost of repairing it is more than its actual (total) value. As such, it would be more expensive to rehabilitate the damaged vehicle than it would be to purchase a replacement.
When does an insurance company consider a car totaled?
An auto insurance company would deem a car totaled if the estimated repair costs exceed the vehicle’s market value (also referred to as book value). This requires calculations on the insurer’s part, and each state has different regulations that insurers must abide by when making estimations.
In the state of New Jersey, an insurer would consider a vehicle totaled if the vehicle’s actual cash value (ACV) is less than the repair bill. New Jersey guidelines state: “Actual cash value (ACV) is the amount your vehicle would have sold for on the date of the accident.”
It may be economically impractical to repair a vehicle when it’s considered “totaled.” It’s important to note, too, that insurers may consider a vehicle totaled if the costs of repairing it amount to only 80% of its actual cash value (ACV) (rather than 100% or greater) because there may be hidden or unforeseen repairs and additional costs. This stipulation is referred to as the “total loss threshold.”
In the end, actual cash value (ACV) depends on the specific make and model of a car, how many miles it has on it, its overall condition, and its potential salvage value, among other factors.
What insurance covers a totaled car?
If you’ve shopped for auto insurance before, you’re aware there are several different types of policy. When it comes to covering the costs of a totaled car, four types of auto insurance may cover a driver: collision, comprehensive, property damage liability, and uninsured motorist.
Collision and comprehensive insurance policies cover a range of potential issues with a vehicle, including car accidents, collisions with animals, and falling trees. Accordingly, a totaled car would likely be covered under one of these policies, although it’s never guaranteed.
If you are in an accident and the other driver is at fault, that driver’s property damage liability coverage should also cover the costs of your totaled car (assuming they’re insured). And uninsured, or underinsured, motorist liability should cover you if the other driver is not insured – assuming your insurance policy includes this coverage.
What happens when your car is declared a total loss?
There will be some back-and-forth communication after an accident as your insurance company and the other involved parties sort out the details. However, if your car is declared a total loss, your insurer will likely offer a settlement (a cash payout) based on your vehicle’s value, minus any applicable deductibles.
Here is some insight into the expected process: You file an insurance claim, an adjuster inspects the vehicle and determines whether it’s a total loss, and, if yes, your insurer will contact you with a settlement offer. If you accept, the insurer will send you a check for the amount you agreed on.
You can also try to fight for a higher settlement price by getting your own appraisal and submitting a counteroffer. You can even hire an attorney if you feel it’s warranted.
What to do when your car is totaled
If an insurer determines that your car is totaled, you still have options:
- Accept a settlement check from the insurer for the agreed-upon value.
- Keep the car, and use it for spare parts, or try to repair it yourself.
- Sell it to a salvage yard.
- Keep driving it (a car may be totaled, but still drivable and road-worthy).
- Trade it in for a new car. It will be up to the specific dealership if they’ll accept it as a trade-in.)
For most people, the simplest course of action may be to accept the settlement check, but there are additional options.
How do you receive the payout for a total loss?
An insurer will typically send you a check for the agreed-upon settlement price. You should note that insurance deductibles may be applicable. This could knock down the payout, and if you don’t own your car fully, for example if you lease it or still owe money on an auto loan, there may be deductions from the total payout amount.
Frequently asked questions (FAQs)
Can you negotiate a total loss?
You can negotiate a total loss, but it would require you to hire an appraiser and do your research into the fair market value (or actual cash value) of your vehicle. This may require a lot of legwork and could even require legal assistance from a lawyer.
Can you keep a totaled vehicle?
You can keep a totaled vehicle; some vehicles that are “totaled” may still be drivable. It’s your car, after all, and you can decide what to do with it. However, if the vehicle is not drivable, you will need to find ways to transport and store it, which may not be easy or cheap.
How is the value of a total loss vehicle calculated?
In the simplest terms, the total value of a totaled vehicle is calculated by subtracting the estimated repairs to the vehicle from its actual cash value, or market value. If the estimated repairs are greater than the market value (or, in New Jersey, they amount to 80% of its market value), the vehicle is considered a total loss.
Is a car totaled if airbags deploy?
Deployed airbags do not necessarily mean that a car is totaled because airbags can be replaced. Again, determining whether a car is “totaled” comes down to whether the overall repairs needed to restore it to pre-accident condition are greater than the vehicle’s pre-accident market value.
This story was written by NJ Personal Finance, a partner of NJ.com. The information presented here is created independently from the NJ.com editorial staff, and purchases made through links in this article may result in NJ.com earning a commission.
