Drivers and car owners put insurance coverage in place to meet state laws or to meet certain contractual obligations, but mostly, car insurance is put in place to offer financial relief from bills incurred in the event of a car accident. Occasionally, the damage caused to an automobile in an accident is so extensive that an insurance company will decide that paying for the repairs is going to be more costly than settling on a cash settlement paid to the driver/car owner carrying the insurance. When this happens, it’s known as “totaling” you car. If this should ever happen to you, there are some critical things you should be aware of.
Who determines if a car is totaled, and how?
While every car insurance company has a slight variation on determining if a car is totaled in general, a couple of categories apply. The simplest determination is if the cost of repairing your car after an accident is more than the cost of replacing it. This is usually determined by an adjuster assigned by your insurer to examine your car and work with your claims specialist to determine if the car is totaled and if so, what the payout will be.
In other cases, a car may be totaled if it has received damage that is defined as dangerous under your state’s laws.
There are also cases when your insurer may decide it wants to declare your car totaled if the repairs necessary to get the car back on the road and functioning properly exceed a threshold percentage of the car’s value. For example, if your insurer has your car valued at $10,000 and the repairs required to properly fix your car exceed $8-$9,000, details in your policy may call for the insurer to total your car.
Where do your car’s value numbers come from?
The calculation for determining the threshold of a totaled car is usually undertaken by a claims adjuster working with or for your insurer. They will take some or all of the following factors into consideration when they come up with this threshold value:
- A mechanic or multiple mechanics’ repair estimate(s)
- The current market, Blue Book or actual cash value of your car
- The salvage value of the vehicle
- Any relevant state laws
One other factor in determining a threshold value for totaling your car (and one many car insurance companies won’t tell you about) is if you have additional coverage options they may have to pay for. For example, if you have a rental car reimbursement option on an applicable policy feature (like a collision or comprehensive policy), the insurance company will factor in how much they will have to pay for providing you a rental vehicle while your car is being repaired. That cost has nothing directly to do with the cost of repairing your damaged car or the value of your car, but some insurers will factor all the products and services they will be paying for on a single claim when determining whether it would cost them less to total your car than to pay for everything.
What if the payout seems low?
The claims adjuster or claims manager will decide to total your car and will subsequently offer you a final settlement. Remember, this settlement will be after any applicable deductibles are taken into account. If you are unhappy with the settlement amount, you may have a few avenues for challenging it.
Your car insurance policy may include an Appraisal Provision in the terms and conditions. Under this provision, you may be able to get an independent appraisal of the costs to repair your car and the car’s actual cash value. If you engage an independent appraiser that comes up with a different (hopefully higher) total for your settlement, an arbiter may be brought in to resolve the difference between you and your insurer.
Even if you don’t have a strong Appraisal Provision in your policy, you may be able to challenge any settlement value of your totaled car claim if you think your insurer has undervalued your car. You may be able to challenge the list value your insurer has placed on your car. You can get statements from your mechanic, use your vehicle’s service record and its mileage record and argue that your car is worth more.
I got a settlement…but I still owe money on my car. What now?
If you have the unfortunate experience of getting your car totaled, you may be in a position where your troubles are just getting started. If you have a serious accident with a newer car or a car you are leasing, the settlement amount you get from having it totaled may not be enough to pay loan balances or leasing fees. It is not uncommon for a newer car to depreciate faster than an amortization schedule for a car loan progresses. Most car loans are front-loaded with fees and interest and most car leases include provisions which require additional fees and payment should you “lose” the car before the terms of your lease are completed.
In these situations, it might be wise to add a car insurance policy option like loan/lease payoff or what is generally referred to as Guaranteed Asset/Auto Protection (GAP) coverage. There are also a growing number of car insurance companies that offer what they call new vehicle replacement options. Adding one of these policy provisions can protect you against the rare occasion when the settlement from totaling your car still leaves you short of what you owe on a car loan or lease. (In fact, most leasing agencies and lenders will require you to include a provision like this.)
You get car insurance to protect yourself and your family against financial calamities in the event you are in an accident. Before you have to face the stress or dealing with the aftermath of a serious car accident, know what the full extent of your protection is should your car ever suffer so much damage it’s considered a total loss.
About the author:
Jeffrey Davidson has over 25 years of experience in all aspects of the car insurance industry ( from sales and marketing to writing.) He is currently an writer focusing on insurance issues for Reply!. See his other article on insurance options and prices.