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What is Total Loss Car Insurance?

Driving inherently requires assuming some level of risk, whether to yourself, your property, or those around you. One of those risks is a “total loss,” occurring when a car is damaged badly enough that its repair cost is more than replacing it. While many carry car insurance specifically to protect themselves in this situation, you may not be fully protected. Read on to learn more.

What Is a Total Loss?

After an accident, insurance appraisers assess the damage to a vehicle to determine if the costs to repair it are greater than its market value. If they decide salvaging the car is more expensive than replacing it, the car is deemed a total loss.

Appraisers consider factors like a car’s actual cash value, salvage value, and repair cost. Though cases vary, many cars that deploy airbags in an accident are deemed a total loss since replacing the airbags often costs more than the car’s overall value. 

What Happens if Your Car Is Declared a Total Loss?

Once an insurer decides a car is totaled, they take ownership of it and offer the driver a total loss insurance payout. Total loss car insurance provides a total loss settlement, which is the actual cash value of the car, minus the deductible. Since most drivers cannot anticipate a total loss accident, total losses can present the following complications.

What If You Still Owe Money on a Total Loss Vehicle?

Suppose a driver still owes money on a totaled car instead of owning it outright. In that case, the total loss insurance payout goes to the lending company or leasing agency of the vehicle first to cover the outstanding balance owed on the car. Any remaining money goes to the driver.

If you’re concerned you don’t have enough coverage to protect you in a severe accident, you should consider gap insurance. Gap insurance covers the difference in a car’s actual cash value and the remaining balance owed in the case of a total loss settlement.

Can You Negotiate a Total Loss Settlement?

You have a right to dispute your total loss insurance payout and negotiate a higher amount. Navigating how to dispute an insurance total loss on a car involves proving why the settlement is insufficient. For instance, if you believe the car is worth more than what you were offered, you can consult Kelly Blue Book to see how much the same model car is worth in a similar condition.

How Are Total Loss Claims Paid?

Drivers must submit a total loss claim to their insurance company for a car that has sustained severe damage in an accident. Then they must deliver the car to a body shop approved by their insurer. Insurers will use the report from the mechanic on the condition of the vehicle to help determine if the car is totaled.

Once the settlement is agreed upon, policyholders must accept the offer to receive their money. The total loss claim then gets paid to the policyholder and/or their lienholder. 

Can You Keep a Total Loss Vehicle?

Insurers typically take possession of totaled vehicles once the total loss car insurance settlement is complete; however, some states allow drivers to buy back their totaled vehicles.

Policyholders may want to keep their car for parts, sentimental value, or a charitable donation. 

Buying back your totaled car to repair and drive again is a lengthier process. States that allow it require drivers to pursue an inspection, obtain a new title and plates, and purchase insurance for the vehicle to reach street-legal status. Drivers should consult their local Department of Motor Vehicles for specific requirements.    

What Is Total Loss After a Car Insurance Claim?

Due to the lengthy process involved in determining whether a car is totaled and agreeing on a settlement, total loss car insurance claims typically take longer than standard collision claims.

Unlike a regular collision claim after an auto accident, a total loss claim renders a car worthless except for a final total loss settlement.

Policyholders must follow specific steps to complete the total loss settlement process. While drivers can contact their insurer to report a minor fender-bender, they are required to follow the instructions set by their insurance company to the letter to declare a total loss. Insurers prefer to research claims thoroughly before paying a total loss settlement.        

What Is Total Loss Car Insurance?

Insurers offer a variety of types of car insurance for drivers to protect themselves in an accident. Nearly all states require drivers to hold liability insurance, at minimum, which covers damage to other drivers or property resulting from an accident. Only comprehensive policies provide total loss car insurance coverage. 

Drivers may also purchase collision insurance, which offers more coverage for damage and injuries in an accident but stops short of full total loss car insurance. Insurers offer add-ons such as rental car reimbursement and lease or loan gap coverage to protect drivers facing a total loss settlement.

How Is Total Loss of a Vehicle Determined?

Claims adjusters calculate a car’s actual cash value to determine the total loss insurance payout. The Actual Cash Value (ACV) represents the cost to replace the vehicle minus depreciation when the car was deemed a total loss. Previous accidents, mileage, and normal wear and tear contribute to the ACV.

Other factors used to determine the actual cash value of a car include its make and model and the climate of the resale market at the time it is totaled. Claims adjusters also consider a car’s potential salvage value. States may require claims adjusters to use a total loss threshold or total loss formula to decide a car’s total loss insurance payout. 

What Is a Total Loss Threshold (TLT)?

A total loss threshold (TLT) is mandatory in roughly half of the United States. TLT describes what percentage of a car’s total loss value meets its market value. Each state that mandates using this formula holds different total loss thresholds. For example, thresholds range from 60% (Oklahoma) to 100% (Colorado). 

In TLT states, claims adjusters must deem a car a total loss when repairs exceed its actual cash value by a particular percentage; however, damaged vehicles that do not meet the minimum threshold may be salvageable.       

What Is a Total Loss Formula (TLF)?

Total loss formula (TLF) is calculated by adding a car’s salvage value to the repair costs. When a claims adjuster determines this estimate is higher than the car’s actual cash value, the car is officially deemed a total loss. States that do not mandate TLTs default to this formula.

TLF claims may coincide with cases where a car sustains too much damage in an accident to operate safely on the road. In such a case, regardless of whether states mandate TLT or TLF methods of determining total loss settlements, claims adjusters typically deem the car a total loss.  

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