What Happens when Your Car is Totaled

Unfortunately, there is no coming back from some auto accidents. If your car is damaged so severely that your insurance company feels that repair would cost more than replacement, they will likely total it. But what should you do when your car is totaled?

Definition of “Totaled”

A car is considered “totaled” when your insurance company decides to take a total loss, according to the National Motor Vehicle Title Information System. When they total a car, insurance companies look at numerous costs associated with damaged vehicles, including:

• Cost of repair (parts and labor);
• Diminished resale value;
• Rental reimbursement for driver; and
• Any other associated costs.

If all of those things added up is more than the car will be worth after repair, the insurance company totals the vehicle. This means that they will pay out the value of the car at the time it was damaged and salvage the car. You can use the money you receive from the insurance company toward a new vehicle purchase.

Options After a Car is Totaled

You have two basic options if your car is totaled. The first is to simply purchase (or lease) a new vehicle and forget the old one ever existed. This is usually the avenue consumers take because the insurance company is likely correct in their valuation of the damaged vehicle.

The second option when your car is totaled is to purchase the vehicle back from the salvage yard. The problem with this option is that salvaged vehicles (those disposed as totaled) are issue a salvage title, and cannot be driven on the freeway or issued license plates. In order to drive the car again, you would have to rebuild the vehicle, have it inspected and obtain a rebuilt title for the vehicle. Most cars are not worth the effort or expense.

Reimbursement for a Totaled Car

When your car is totaled, your insurance company will reimburse you for the vehicle according to the terms of your policy agreement. In most cases, according to CarInsurance.com, this means that the insurance company is obligated to make you “whole” again with regard to the car.

In order words, you will receive the Actual Cash Value (ACV) of the vehicle at the time it was in the accident. This is not decided according to any auto loan you might have taken out on the vehicle; if you’ve totaled a new car, you might owe more than what you receive from insurance.

If your car is totaled, your best bet is to communicate with your insurance company. Find out exactly what they plan to do with regard to your vehicle, and insist upon regular updates as they make their decisions. When your car is totaled, find out where it has gone to salvage if you are interested in purchasing it back.

Sources:

National Motor Vehicle Title Information System, Glossary

CarInsurance.com, What happens when my car is totaled in an accident?