What to do when your car is totaled

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Car crash
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If you’re in an accident and your car is badly damaged, your insurance company may tell you that your vehicle is totaled, or a total loss.

Insurance companies use several factors to determine whether to total a car or not. These include things like the specific condition of the vehicle, state laws and the insurer’s own policies. Those policies can vary depending on the company.

Money expert Clark Howard has decades of experience dealing with insurance companies and says it’s important to know that you have a couple of options if this happens to you.

In this article, we’ll look at what to do next if you’ve been told your car is a total loss.

Why your car may be totaled even if it doesn’t look like a total loss

First of all, it’s important to know that just because a car might not look terribly damaged, it could be declared a total loss.

“If the airbags deploy and the car is four years old or older, they’ll likely total it because the airbags are such an expensive part of the car to fix,” Clark says.

Just one airbag can cost anywhere from $3,000 to $6,000 to replace, depending on the make and model, according to CostHelper.com. Insurers would rather write the car off than spend that kind of money.
“If the insurer says that the fixes will be 70% of the car’s value, oftentimes they’ll total it,” Clark says. That means that you’re back to square one as far as vehicles go. Meanwhile, the insurer goes their merry way — and your premium likely goes up.”

Here are your two options if your insurer says your car is totaled

With that in mind, here are your two main options if the insurance company totals your car:

1. You can accept the insurance company’s full settlement and get another vehicle

Most of the time, if your vehicle is totaled, the insurance company will offer to pay you the fair market value of your vehicle before it was wrecked.

If your vehicle is paid off, that may not be a bad deal. But if you’re still financing your vehicle, things will be a little more interesting.

As an example, let’s say you owe $10,000 on your vehicle, but it’s only worth $5,000. If your vehicle is totaled and your deductible is $1,000, the insurance company will pay you $4,000 for your totaled vehicle.

That $4,000 won’t be going into your fund to buy a new car because you’re still financing the vehicle that was totaled. In fact, you’ll still owe $6,000 on it after you apply the $4,000 insurance settlement.

The only way around that is if you have gap insurance. But there is another option that might make more sense for most people.

2. You can work out an agreement to keep your vehicle with a partial settlement

Clark says when it comes to accepting the insurance company’s settlement, consumers do have some bargaining power that they may not be aware of.

“Some people may be able to work out an agreement with the insurance company to keep their vehicle as a salvage car,” he says.

Insurance companies won’t always disclose all of your options when they total your car. If your car is totaled, the insurer can either offer you either a full settlement (you give them the car and the keys) or a partial settlement where you get to keep the vehicle.

With a partial settlement, you have two options:

  • You can salvage the vehicle yourself or sell it as-is
  • You can donate the vehicle to charity and write it off on your taxes

Elvis Dafrawi, a public claims adjuster based in Atlanta who is not tied to one of the major insurance companies, says insurance customers often lose money for one simple reason: “Most people don’t have a general understanding of how insurance works, so they agree with the insurance company.”

“You should never agree with the insurance company. They are a financial organization. They look out for their own interests.”

Dafrawi says that if your car is totaled, it’s in your best interest to work out a settlement with your insurer that would keep the most money in your pocket.

“You can agree to the damages,” he says. “It works like this: Let’s say you have an accident and the car is worth $5,000, but to fix it costs $6,000. The insurance company is going to total it for financial gain.”

That means they’re only willing to pay $5,000.

If you work out a partial settlement where you get to keep the vehicle, you can shop around to get it repaired, often for much less than what the insurer has calculated.

Final thought on totaled vehicles

Having a traffic accident can be a traumatic experience in more ways than one. Before you make any decision after a wreck, do your homework. Research your car’s value via Kelley Blue Book or a similar service so you and your insurer are on the same page when it comes to what your car was worth.

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