Got a Wrecked Car? A Guide to Navigating a Totaled Vehicle

Totaled Car - What Happens Next?

Accidents are an unfortunate reality of life, whether caused by driver negligence, a devastating weather event like a hurricane or hailstorm, or other unforeseen circumstances. For example, a reckless driver running a red light or a severe tornado leaving a trail of destruction can both lead to significant vehicle damage.

When that happens, your auto insurer would ideally step in to cover repair costs, as long as the expenses are less than the car’s current value. However, if the repair estimate exceeds the car’s worth, your vehicle is deemed “totaled,” leaving you to navigate a maze of policy terms and insurance claims.

In this article, we’ll guide you through what it means when your insurance company declares your car a total loss. We’ll break down how insurers arrive at that conclusion, explore your options and settlement process, and even tackle a few questions you might not have considered. A fair warning, the rules and regulations surrounding totaled vehicles can vary depending on your insurance provider and state.

When Is a Car Considered Totaled?

A car is considered “totaled” when the cost to repair it exceeds its value at the time of the car accident, commonly referred to as the book value or actual cash value (ACV). If your vehicle is deemed totaled, your insurer will compensate you for the ACV (the car’s market value just before the accident) after deducting your policy’s deductible and any applicable fees.

Once a claim is filed, insurance companies rely on third-party vendors that compile extensive vehicle data to provide an accurate assessment. An insurance adjuster will inspect the damage and calculate the estimated repair costs.

When it comes to determining whether your car is totaled, both state laws and your insurance provider’s policies play a big role.

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State Regulations Can Shape the Decision

States set specific thresholds based on the percentage of the vehicle’s actual cash value (ACV) that repair costs would need to exceed, which can range between 60% to 100%. However, many states, like New Jersey, don’t set a specific total loss threshold (TLT), so insurance companies make the call. In these cases, insurers use a Total Loss Formula (TLF), which is usually outlined in your policy. In some states, insurers may also factor in additional costs, like rental expenses, when deciding if a car is totaled.

What Is the Total Loss Formula?

This formula calculates whether a car is worth repairing by subtracting its salvage value (what the insurer can recover by selling it to a junk or salvage yard) from its fair market value before the car accident.

Let’s say the damaged vehicle has a fair market value of $18,000. The insurance company contacts a salvage yard to know what it would pay for the damaged car, and the salvage value is $5,500. The market value minus the salvage value leaves us $12,500, and if the cost of repairs exceeds that, the insurance provider would likely declare your car totaled.

Your Insurance Provider Takes the Final Call

Insurance companies often play it safe and apply even lower thresholds, sometimes declaring a car totaled well below the state-specified percentage. Why do insurers do this? Well, determining the extent of vehicle damage caused by an accident or natural event isn’t always as straightforward as it seems. While the exterior or undercarriage might show the initial extent of damage, auto body shops often discover more issues once they start taking the car apart. Panels get pulled back, and suddenly, hidden damages emerge. When that happens, the auto body shop files a supplemental claim, which can push repair costs much higher. To avoid this domino effect, insurers factor in the possibility of hidden damage right from the start and may decide to total a car sooner. It’s all about staying ahead of the surprises that repairs can bring! In some cases, even if repairs are financially feasible, the car might still be declared totaled if the insurer determines it would be unsafe to drive after getting fixed.

Choosing The Right Auto Body Shop

Mizzoni’s Auto Body strives to provide the best when it comes to auto body repair services. Our knowledgeable, friendly staff will be happy to assist you with any questions to alleviate your repair process concerns.

How Is a Totaled Car’s Value Determined?

Determining the value of a totaled car involves a combination of the insurance company’s policies, your state’s regulations, and specific calculations to assess the vehicle’s actual cash value (ACV). The ACV is usually the car’s original worth minus the depreciation. It will be less than the purchase price due to depreciation, even if your car is relatively new.

Insurers use several factors to calculate the ACV, including the car’s age, condition, mileage, resale value, and the selling prices of similar vehicles in your area. The process can also vary from state to state, as some states require insurance companies to use a specific method to determine if your vehicle qualifies as a total loss. Usually, there are two methods used:

Fair Market Value: An evaluation of what the car would sell for in its current condition just before the accident.
Total Loss Formula (TLF), as discussed before.

The method applied will depend on the regulations in your state, and some states mandate that the insurance providers use one approach over the other.

Totaled Car Insurance: Are You Covered?

The type of auto insurance you need if your car is totaled depends on how the damage happened. Here’s a breakdown of the main coverages:

Collision Coverage: If you’re in a crash with another vehicle or an object, collision coverage will kick in to cover the repairs or replacement of your car.
Comprehensive Coverage: Comprehensive insurance applies when damage occurs due to non-collision events like hurricanes, floods, vandalism, theft, or even hitting an animal.
Property Damage Liability: If another driver causes the accident, their property damage liability insurance should cover the cost of repairs to your car, assuming they’re properly insured.
Uninsured/Underinsured Motorist Coverage: If the other driver at fault doesn’t have enough insurance (or any at all), this insurance coverage will kick in to help cover the costs of your totaled car.

If you’re financing or leasing your vehicle, your lender will need you to maintain both collision and comprehensive coverage. While these coverages are optional in many states, skipping them can leave you vulnerable if your car is totaled. Also, you may have to pay out of pocket to buy a replacement vehicle if your vehicle is totaled and you don’t have comprehensive or collision coverage. Liability insurance is state-mandated, and New Jersey is no exception, but it will only cover the damage or injuries you cause to others. It won’t cover repairs to your own car, even if you’re at fault or experience damage from non-crash-related incidents.

Don't Miss Out on GAP Insurance

If your car is financed or leased and it gets totaled, you’re still on the hook to pay off the car loan or lease. The insurance payout you receive will go toward covering the remaining balance, but this amount may not be enough to cover what you owe, leaving you responsible for paying the difference.

To protect yourself from this financial gap, consider adding GAP insurance to your car insurance policy. This coverage helps cover the difference between what your insurance pays and what you still owe, so you don’t have to pay out of your own pocket.

GAP insurance is quite affordable, and many lenders actually require it when you finance or lease a vehicle. It can also help cover your deductible for collision or comprehensive claims, making it an essential safeguard for those with loans or leases.

Totaled Car - What’s Your Course of Action?

If your car is totaled, the process can feel overwhelming, but staying organized will help you navigate the next steps. Here’s what you need to do:

File a Claim: Just like in a minor car accident, the first thing you should do is file a claim with your insurance provider. However, A total loss insurance claim is slightly more complicated.
Assess the Damage: The insurance company will send an adjuster to inspect your vehicle. This visual inspection helps them estimate the repair costs and determine if the damage exceeds the threshold for totaling the car.
Understand Your Car’s Fair Market Value: The insurer will assess the actual cash value (ACV) of your car right before the accident. This value is typically determined by online tools or by checking the price of similar cars in your area. The insurance company uses this ACV to decide whether the car is a total loss.
Contact Your Lender (If Applicable): If you have a loan or lease on the car, notify your lender about the situation. You’ll need to continue making payments until the claim is settled. The insurance payout will likely go directly to the lender or leasing company to cover the remaining balance.

Does Your Total Loss Settlement Look Unfair?

Data from more than 700 total loss appraisal proceedings in Texas in 2021 showed that insurers’ estimates of customer vehicle values were, on average, $3,500 too low. If you feel that your insurer’s total loss settlement is unfair or too low, there are steps you can take to challenge the payout. Here’s what you need to effectively fight back:

Negotiate First: Before escalating things, try negotiating with your insurance provider. Sometimes, they might reconsider their initial offer after a simple conversation.
Get an Independent Appraisal: If negotiation doesn’t work, consider hiring an independent appraiser. This professional evaluation can help you prove the true value of your vehicle. Keep in mind that you’ll likely need to pay for the appraisal out of your own pocket.
Find the Book Value: Research and gather documents that show the book value of your car at the time of the accident to help you support your argument for a higher settlement.
Research Comparable Vehicles: Look for similar cars in your area and use them as comparables to show your vehicle’s worth.
Submit Your Counteroffer: Once you have all your supporting documents, submit a formal counteroffer to the insurance company. Be sure to include your appraisal, book value, and pricing comparisons.
File a Complaint: If the insurance provider still isn’t budging, you can file a formal complaint with your state’s insurance regulatory department.
Hire an Attorney: If all else fails and you’re still not satisfied, hiring an attorney may be your next step. A lawyer can help you take legal action to pursue a fair settlement.

Having a Plan Can Help

Here at Mizzoni’s Auto Body, we want to take some of the guesswork out of what comes after a car crash by staying on top of your insurance policy, so you can have an established relationship should the worst come to pass.

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