Total loss claims: when your car is totaled

How a car becomes a total loss

Your policy usually lets the insurer choose the cheaper of two things: repairing the car or paying its actual cash value. Insurers total a car when the repair estimate, plus what they expect to recover by selling the wreck, comes close to or passes the car's value. That is an economic decision, and it can be made even when the repair estimate alone is below the car's value.

State law adds a floor. About half the states set a percentage of value at which a damaged car must be treated as a total loss, usually for title purposes: 75% is the most common figure, and the range runs from 60% to 100%. The other states use no percentage, which leaves the insurer's formula in charge. Each state's rule is on its page in claim rules by state, and the total loss check applies it to your numbers.

What the settlement should include

Actual cash value is the market value of your car, with its mileage, options and condition, right before the loss. It is not what you paid for it and not what you owe on it. The NAIC's model regulation on claim settlement practices, which many states have adopted in some form, sets the method for a cash settlement:

• Comparable cars: the cost to buy a car of the same make, the same or a newer model year, a similar body style, options and mileage, based on two or more comparable cars sold or offered in your local market in the last 90 days.
• Taxes and fees: the applicable sales tax and title transfer fees on that purchase, beyond the deductible. Some states spell out what is owed and when; others leave it to the policy.
• Itemized deductions: any deduction for prior damage, wear or the salvage value of a car you keep must be itemized, measurable and explained.
• A way back in: if you tell the insurer within 35 days of getting the check that you can't buy a comparable car for that amount, the model rule requires the insurer to reopen the file.

Insurers usually price the car with a valuation report from a vendor. Ask for the full report. Check the trim level, options and mileage on each comparable car, and whether the dealer listings were real and nearby. If the number looks low, our page on disputing a total loss valuation shows how to answer it with evidence.

Your loan, your lease and gap coverage

If you financed or leased the car, the lender is named on the policy and is paid first. When the actual cash value is less than the loan balance, you still owe the difference. Guaranteed asset protection (gap) coverage, sold by insurers, dealers and lenders, pays that difference; the NAIC notes it covers the gap between what you owe and the car's actual value.

1. Get the payoff amount from your lender as of the settlement date.
2. Compare it with the offer after the deductible, and check whether you bought gap coverage with the loan, the lease or the policy.
3. Keep paying the loan until the payoff posts; a missed payment while the claim is open still hits your credit report.

When the other driver's insurer totals it

If someone else caused the crash, you can claim the car's value from their liability insurer instead of your own collision coverage. You pay no deductible, but you deal with a company that owes you no contract duties, and it pays only up to the other driver's property damage limit. That limit can be as low as $5,000 to $25,000 in many states, less than many cars are worth.

Two practical rules help. First, if the other insurer is slow to accept fault, claim under your own collision coverage and let your insurer recover the money, including your deductible, through subrogation. Second, don't sign a release that covers injuries when you only mean to settle the car.

Keeping the car and the salvage title

When the insurer pays a total loss it normally takes the title and sells the wreck at a salvage auction. You can often keep the car instead, an owner-retained total loss: the insurer subtracts what it would have got for the salvage, and the state brands the title salvage. To drive the car again you usually need repairs, a state inspection and a rebuilt title, and the car will be worth less and may be harder to insure for physical damage.

Before you sign anything, take your belongings out of the car, including the garage opener and the toll tag, and remove the plates if your state requires it.

Questions people ask