What happens when your car is totaled: A Comprehensive Guide to Handling Total Loss and Outstanding Loans
In this Comprehensive Guide, the Steps and stages involved in the totaled car dealing process, along with explanations and examples for each step.
Your insurance company assesses the damage to your vehicle. An adjuster inspects the car to estimate repair costs.
If your car is in an accident, the adjuster assesses the damage and finds that it will cost $8,000 to repair.
2. Determination of Total Loss
If the repair cost exceeds a certain percentage (e.g., 75-80%) of the car's Actual Cash Value (ACV), it's declared a total loss.
The car's ACV is $10,000, and the repair cost is $8,000, which is 80% of ACV. The car is declared a total loss.
3. ACV Evaluation
The insurance company calculates the ACV of your car before the accident based on factors like age, mileage, condition, and market value.
Your car's ACV is determined to be $10,000.
You'll be offered a settlement for the ACV, minus any deductible on your insurance policy.
The insurance company offers you $9,000 (ACV) - $500 (deductible) = $8,500 as a settlement.
5. Salvage Title
The car typically receives a "salvage title" to indicate that it has been declared a total loss. This may affect resale value.
Your car is issued a salvage title, and its resale value is significantly lower.
6. Retaining the Vehicle
In some cases, you can keep the totaled car, but you'll receive a reduced payout that accounts for its salvage value.
You choose to keep the car, and the insurance company reduces your payout to $6,500, considering the salvage value.
7. Buying a Replacement
You can use the insurance payout to buy a replacement vehicle. Ensure any outstanding loans on the totaled car are paid off.
You use the $8,500 payout to purchase a new vehicle.