Total loss car insurance helps cover the cost of replacing your car if it is totaled. This coverage typically falls under full coverage policies, which include both collision and comprehensive insurance. These types of coverage pay for damage to your vehicle and, depending on your policy limits, may cover the cost of your totaled car. Each state has a total loss formula that helps individuals and insurers determine when a car is considered totaled.

What is total loss?

Total loss car insurance provides coverage when a vehicle is damaged beyond reasonable repair in a covered claim. To determine this, your auto insurer assigns a claims adjuster to assess your vehicle’s value by inspecting the damages and considering other factors that affect depreciation. The insurer uses this information along with market value data to determine your car’s worth, known as the actual cash value (ACV). If the ACV is less than the cost of repairs and you have total loss coverage, the insurance will pay out for the totaled vehicle.

How is total loss value calculated?

There are two primary methods for determining when a car is a total loss:

  • Total Loss Threshold: This is when a vehicle’s repair costs reach a specific percentage of its market value, defined by each state. The threshold could be a set percentage or based on a total loss formula.
  • Total Loss Formula (TLF): This calculates the vehicle’s fair market value minus its salvage value. If repair costs meet or exceed the TLF figure, the insurer can declare the vehicle a total loss.

Full coverage car insurance, which includes comprehensive and collision coverage, can help pay to replace a totaled vehicle in covered events. If your car is financed, consider gap insurance to cover the difference between what you owe and the car’s value after a total loss event.

What happens if your car has been declared a total loss?

If your insurance company declares your vehicle a total loss and you decide not to dispute the decision, there are several steps to follow. If you are leasing your vehicle, you should also notify the leasing company about the total loss. Here’s what you should do:

  • Remove License Plates: Take both the front and back license plates with you. Leaving the plates on the vehicle can lead to complications. Keep the plates until they are no longer associated with you at the DMV.
  • Remove Personal Belongings: While removing your license plates, check the vehicle for any personal items. Look in the dash, glove compartment, door and seat pockets, trunk, and any other areas where you might have left belongings. Once you turn in the keys, recovering anything left inside may be difficult.
  • Give the Keys to Your Claims Adjuster: After collecting your plates and personal items, hand over all sets of keys to your claims adjuster. They will provide you with several documents to complete.
  • Complete the Required Paperwork: Fill out and sign all the documents given to you by your claims adjuster. By the end of the process, you will likely transfer the car title to your insurer and no longer be responsible for the vehicle. However, you may choose to keep the vehicle and refurbish it enough to qualify for a rebuilt title if you wish to drive it again.

How to dispute a total loss

If your vehicle is declared a total loss and you disagree with the assessment, you can dispute the decision. By disputing, you are asserting that your auto insurer undervalued your vehicle and declared it totaled prematurely. Here are the steps you may want to consider to initiate a dispute:

  • Assemble Documents and Vehicle Information: Gather any documents that reflect your vehicle’s actual market value. These might include the original receipt of sale and records of any features and add-ons your car has.
  • Assess Current Market Information on Your Vehicle: Use a resource like Kelley Blue Book to find the average current market value of your vehicle make and model. While this tool provides ballpark figures, it may not be precise enough on its own to dispute the total loss declaration. For exact figures, consider getting an appraisal.
  • Notify the Insurer of Your Stance and Submit Your Evidence: Contact your claims adjuster and inform them that you believe they undervalued your vehicle and that you are disputing the total loss declaration. Provide them with your documentation and the information you gathered on market value.
  • Request an Appraisal: If your auto insurer remains unconvinced, request an in-person appraisal of your vehicle. Many of these determinations are made based on paperwork and known variables (like make and model) without an in-person appraisal.
  • Consider Legal Action: If you and the insurance company still cannot agree on whether your vehicle was appropriately valued after completing all the above steps, consider filing a complaint with your state’s department of insurance. This process can be lengthy and complicated but may be worth pursuing if you believe your auto insurer is acting in bad faith.

How much does a total loss pay out?

Total loss car insurance settlement payouts are based on the value of your vehicle. When your insurance company decides whether to declare your car totaled, they focus on its actual cash value (ACV). This value reflects the vehicle’s worth after accounting for any damage or depreciation. Once all relevant factors are considered, the insurance company will pay you the ACV, provided the claims process is successful.

Can you keep a car that’s a total loss?

Yes, you can keep a car that’s been declared a total loss. This is known as retaining salvage. Since the vehicle’s value has significantly decreased due to the total loss, it is now worth only its salvage value, which is much lower than its market value. You might need to remove comprehensive and collision coverage until you can prove the vehicle has been repaired. Keep in mind that without these coverages, you won’t receive the same value if the vehicle is damaged again.

If you decide to keep your car after it’s declared a total loss, the insurance company will notify the Department of Motor Vehicles (DMV) to issue a salvage title, indicating that the vehicle sustained substantial damage. Insuring a salvage vehicle can be challenging, so it may be worthwhile to take steps to obtain a rebuilt title if you plan to repair the vehicle and either sell it or reinsure it.