How is your car considered totaled? Insurance companies use a simple formula when determining if your vehicle is a 'total loss' or 'totaled'. If the damage to your vehicle costs more to repair than it would cost to write you a check to cover the value, it’s 'totaled'. The good news is that you’ll be compensated from the insurance company, instead of being stuck with a badly damaged car.
We’ve no doubt all heard someone lamenting, “my car got totaled!” It typically comes up when someone is explaining extreme damage to their car as the result of an equally horrific accident. No one wants to see their beloved vehicle turned into salvage, especially if we rely heavily on it for our day-to-day transportation.
So yes, we understand hearing those words means that it was a bad experience, but what does that mean from an insurance company perspective? And what can we expect in terms of compensation? While not exactly common questions, they are important.
What does total loss mean?
Good question! Insurance companies use a simple formula when determining if your vehicle is a ‘total loss’ which is generally where people would say that their vehicle was ‘totaled’.
This means that if there was major damage done to your vehicle, and the repair costs were more than a written check for the value of the vehicle, the car will be totaled. It does boil down to cost, and typically your provider wants to pay the least amount possible.
However, this doesn’t mean that you’d simply be stuck paying the cost of repairs. There’s good news: you’ll still be compensated from the insurance company even if your car is totaled. They may not provide the amount it would take to pay for damages, and they may not offer enough for a replacement vehicle, but they’ll give you what your vehicle is worth at the time it’s deemed totaled. A much better outcome than having to simply turn it into salvage or keep what could end up being a lemon with potential issues. Though if that’s what you’d rather do, at least you have options.
How does the process work?
First, the insurance company will determine if your policy includes physical damage coverage assuming the accident was your fault.
If you are not at fault, the other driver will need to be insured with high enough liability limits to pay for the value of your car.
If they do not carry adequate liability limits, you better hope you have either uninsured motorist and/or underinsured motorist coverage.
If the at fault party, either you or the other driver, does not have adequate insurance, the victim is out of luck. This is why you never want to allow your coverage to lapse, even if it’s for a brief period of time. That would only invite the worst to happen, and you don’t want to be in a major accident without protection.
The only hope of recouping losses resulting from the damages would be to sue the other driver, but that could become an even bigger issue. Good luck getting money from a driver who wasn’t responsible enough to carry insurance in the first place!
Of course, in theory, it’s very easy to complete the process once coverage is verified for the at fault driver.
What would an example of total loss look like?
Value of vehicle: $4,000
Cost to repair: $5,000
This example assumes that an insurance policy was active on the vehicle at the time of the accident.
A vehicle worth $4,000 collides with a tree while swerving to avoid a deer. This is incredibly common, and unfortunate.
The insurance company gets damage estimates of $5,000 to repair the car.
The insurer would be crazy to pay more than it’s worth in repair bills, so they will consider it a total loss. If an agent tells you otherwise, they’re up to something.
The insurer will also hold onto your old car once they replace it and probably sell it for scrap to recover some of the money they paid to buy you a new one.