What to Know About Total Loss Car Insurance Settlements

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From stoplight fender benders to highway crashes, being involved in a car accident is both scary and stressful. Even if everyone walks away unharmed, your vehicle will likely need to be repaired. In some cases, it could even be totaled.

If your insurer deems your car a total loss, you’ll need to get a total loss car insurance settlement from either your insurance company or the at-fault party’s insurance carrier.

Here’s what you need to know about total loss car insurance settlements:

What is a total loss car insurance settlement?

A total loss car insurance settlement is the amount an insurance company is willing to pay for your vehicle if it’s totalled in an accident. Generally, if it will cost more to repair a vehicle than the car is worth, an insurer will deem the car a “total loss.”

The insurer of the at-fault party (whoever is responsible for causing the accident) typically pays this settlement. If there was no other driver (e.g., you hit a tree), your insurer will pay the settlement.

In order to receive a total loss settlement — or really, any settlement — you’ll need to file an accident claim after the loss occurs. Each auto insurance carrier has its own requirements for how and when you must notify them of an accident; be sure to read the fine print of your policy to ensure that you file a timely claim. This will improve your chances of getting your claim approved.

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When does an insurer declare a car a total loss?

When it comes to car insurance, a vehicle is determined to be a total loss if the insurer decides it would cost more (or about the same) to repair the vehicle than it’s worth.

However, the total loss calculation usually involves multiple variables, which an appraiser will determine after inspecting your vehicle. These could include:

  • The vehicle’s market value immediately before the crash
  • The salvage value after the accident (the value of the usable parts)
  • Estimated repair costs
  • Diminished value (the difference between the car’s worth before the accident and its market value after being repaired post-accident)
  • The cost of your rental car while the vehicle is being repaired

An insurer may deem a car as totaled for a number of reasons, including:

  • The vehicle’s damages meet or exceed your state’s total loss threshold. Some states only require your vehicle’s repair costs to exceed a certain percentage of its repair costs. In North Carolina, if your vehicle is worth $10,000 and incurs $7,500 worth of damages, your insurer will total it out, since the state’s total loss threshold is 75%. Other state laws have thresholds as high as 100%, though, so a $10,000 vehicle wouldn’t be totaled out until the repair costs exceed $10,000.
  • Repair costs exceed the car’s actual cash value (ACV). Regardless of your state, your vehicle will be deemed a total loss if the insurer’s estimated cost of repairs exceeds the vehicle’s pre-accident actual cash value, or ACV (taking into account factors like mileage, age, wear and tear, and even market trends). So, if the carrier’s repair estimate is $11,000 and your car was determined to only be worth $10,000 before the crash, it’ll typically be totaled.
  • Damages are too extensive to make the car safe to drive. Some vehicles will have such extensive damage following a car crash that they simply can’t be repaired without compromising your safety as the driver. If this is the case, the insurer will likely total your car out.

Check Out: How Long After a Car Accident Can You File a Claim?

Whose insurance pays for a totaled car?

In the majority of states, the driver who caused the accident — known as the at-fault party — is responsible for paying for the totaled car. Generally, their liability coverage will pay for damage to other vehicles if they’re deemed at fault.

However, there are some exceptions. For example, if your vehicle is totaled by a hit-and-run driver, the responsible party might never be identified, making it difficult for them to pay for a total loss. Or, you could get into a one-vehicle accident and total your car without another driver’s involvement. In either case, your own policy’s collision coverage (if you chose to buy it) would pay for the total loss settlement, up to your policy limits.

Keep in mind: If you get in a single-car accident — you hit a phone pole or other structure that causes damage to your car — your insurance may only pay for damages if you have collision coverage. If you don’t have collision coverage, you’ll be responsible for paying out of your own pocket to repair your car.

Additionally, some states have shared fault laws. This means that more than one driver can be deemed responsible for the accident, even if their role was minimal. Arizona, for instance, has a comparative negligence law that reduces a driver’s damages in proportion to their own level of fault. So, if another driver causes the accident, but you’re found to be even 1% responsible, you’ll get a reduced total loss settlement.

Learn More: What You Should Know About Insurance Scores

How much will insurance pay for a total loss settlement?

Many different factors can affect your total loss settlement offer, or how much insurance is willing to pay for your totaled vehicle.

These factors can include:

  • The value of the vehicle: How much your car was worth before the accident helps determine how much a carrier needs to pay you.
  • Coverages you have in your policy: Your own policy can influence your total loss settlement, especially if you’re forced to file the insurance claim against your own policy due to a hit-and-run, uninsured motorist, or at-fault accident. First and foremost, you’ll be bound to your policy limits; if you buy minimum coverage and your car was worth more, you may end up with a loss. Meanwhile, optional coverages such as new car replacement can increase your total loss payout.
  • The value of comparable vehicles in your area: In order to evaluate your vehicle for a total loss claim, insurers will look at comparable vehicles for sale in your area. They’ll try to find vehicles of the same make, model, and year with the same (or similar) features, to determine the fair market value at that specific time.
Keep in mind: If you’re found to be at fault for the accident, or if fault hasn’t yet been determined, you’ll typically need to pay your policy’s deductible to receive your total loss settlement check. This deductible could be hundreds or thousands of dollars, depending on what you chose when buying the coverage.

Calculating the settlement for your totaled vehicle will be a separate process from calculating costs for any bodily injuries, medical payments, or other property damage resulting from the accident.

What if I have a loan on a totaled car?

One thing that doesn’t affect your total loss settlement amount is how much you still owe on the vehicle, assuming you purchased it with a loan.

The insurer will contact your lender, since the lender technically owns the vehicle — not you. The insurance carrier will then send the first check to your lienholder after a settlement is reached. If there’s any money left over after paying off your debt, the remainder will go to you with a second check.

Unfortunately, you can owe more to a lienholder than the vehicle is worth. If this happens, your lender will get the total loss settlement check. You’re then left to pay the remaining balance on the loan out of your own pocket.

Good to know: This is why some drivers opt for GAP coverage. With a GAP policy, any negative equity in your vehicle is covered (up to your coverage limit). If your car is totaled while you owe more than it’s worth, GAP coverage will step in to help cover the difference. Keep in mind that while GAP coverage can ensure you won’t owe your lender for a totaled car, you still won’t get any money from the payout.

Can I negotiate a total loss car insurance settlement?

Put simply: Yes, you can negotiate the total loss settlement amount that’s offered to you. In some cases, you may be able to get more money for your totaled car.

It’s important to note that the process can vary a bit depending on your state’s rules and even the specific insurer. In general, though, here are the steps you need to take:

  1. Dispute your settlement offer. The first step is to let the insurance provider know that you disagree with the settlement amount they’re offering. Some carriers will expect you to state your reasoning at this time. The claims adjuster assigned to your case will usually be willing to go over the numbers with you so you understand why they came to that conclusion.
  2. Don’t accept payment. Cashing a check from an insurer is another way of saying that you accept their offer as it stands. If you’re unhappy with the offer, don’t take any money from them until an agreement is made. In some cases, you may be able to request a check for the vehicle’s undisputed amount (usually its salvage value) while you continue negotiating the remaining amount with the carrier.
  3. Research comparable vehicles in your area. One of the biggest factors in determining your totaled car’s market value is how much local comparable vehicles (comps) are selling for. You can argue for a bigger settlement if you find that most comps in your immediate area are selling for a significantly higher price.
  4. Research your state’s insurance laws. Your total loss settlement could be reduced by certain state-specific laws. For example, if you’re found to have been 10% responsible for the accident, your settlement offer may be reduced proportionately.
  5. Make a counteroffer and document your reasoning. It’s always nice to get more for a totaled vehicle than less. Just know that you’ll be expected to tell the insurance carrier why your vehicle should be valued higher, and even provide evidence. This could be receipts from recent upgrades or services conducted on the vehicle, alternative comps in your area, a higher repair estimate, or even photos showing that the vehicle was in even better condition pre-accident than the appraiser states.
  6. Consider hiring an appraiser. The insurance carrier will likely have an appraiser or adjuster valuate your vehicle. However, some of the factors that go into a vehicle’s value can be a bit subjective. Hiring your own appraiser can be one way to get a second opinion and give you a strong argument for an adjusted value.
  7. Consider hiring an attorney. If you still can’t come to an agreement with the insurer, it may be time to hire representation. Just be sure to factor the lawyer’s fees into your case; if you’re negotiating just a few thousand dollars, you may pay even more than that for counsel.
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About the author
Stephanie Colestock
Stephanie Colestock

Stephanie Colestock is a Washington, D.C.-based writer who has more than 11 years of experience in writing about investing, business, and personal finances. She’s contributed to outlets such as Yahoo! Finance, MSN, Investopedia, Credit Karma, Credible, and more. She holds a bachelor’s degree from Baylor University and is in the process of earning her CFP® certification.

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