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Laura Berry

Former Insurance Agent

Former Insurance Agent

Joshua Adamson

Joshua is a copywriter at Obrella who for more than 10 years has been creating content about insurance, health care, and more. He helps companies explain complex insurance subjects in simple ways so that customers can make smart buying decisions. He spends way too much time binge-watching Netflix, loves the outdoors and has a cat who tolerates him.

UPDATED: Dec 11, 2023

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How Do Insurance Companies Determine Total Loss?

A car is generally considered totaled when the cost of repairing it exceeds the current value of the car.

Declaring Your Car a Total Loss

All car insurance companies will compare the actual cash value of your car to how much they’ll have to pay out in claims when determining whether your car is a total loss. If it costs them more money to fix your car, even after you pay the deductible, than the value of the car, the insurance company will likely declare it a loss.

For instance, if your car is currently worth $9,000 and it will cost $12,000 to in repairs, it will be considered totaled. It makes no sense for an insurance company to pay more than your car is worth to have it repaired.

Older model vehicles are more likely to be totaled than newer ones. New cars have higher resale values and are less likely to cost as much to fix, especially if an older model requires parts no longer manufactured.

Your insurance company will have a claims adjuster appraise the value of your car and receive an estimate on the cost of repairs to determine how they compare.

Insurance companies also abide by state laws when dealing with totaled cars. The laws in your state might stipulate a specific cost of repair as being too high to be worth repair. They may also declare your car totaled if they deem it cannot be safely repaired.

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What to Do If Your Car is Totaled

Once your claims adjuster notifies you that your car is totaled, you’ll need to remove your personal items and plates from the vehicle and prepare to hand the car over if you decide you don’t want to keep it.

If you opt to keep the car, notify your insurance company and they’ll contact the salvage yard to find out the fair market value of what remains of the car. This value will be paid to retrieve the remains of your vehicle and deducted from your settlement. Your car will be released to you with the salvage title, but you won’t be legally able to drive it until all repairs have been made. You can either fix your car or sell it for scraps.

If you decide you don’t want to keep the car, your insurance company will then assess the actual market value of your car pre-wreck and issue you a check.

Where the check goes depends on a few things. If you own the car outright, the check will be sent directly to you and is yours to do with as you wish. If you leased the car, the check will be sent in its entirety to the leasing company. If you’ve financed the car, the remaining balance will be sent to the bank that holds the loan and if there’s any left over, it will be sent to you.

Your insurance company will likely only replace your car in the event you have Guaranteed Replacement Cost coverage on your vehicle. Otherwise, finding a new car will be up to you.

The insurance claims adjuster will look at a variety of factors to determine the market value of your car, including comparisons performed online. It’s important to do your own research on the value of your car to help ensure you’re getting a fair price.

If your car was declared a total loss, and you have questions, talk to a licensed expert. They can help you find a car insurance carrier you can trust.

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