What Happens if Your Car Is Totaled?

Close Up Of Two Cars Damaged In Road Traffic Accident

A car crash can be emotionally and financially crushing. But when your car is totaled in a crash, the impact can be even more devastating. If your car is totaled, meaning your insurer has declared it a total loss, the vehicle is typically unfixable or would require repairs that exceed the vehicle's value.

Hop in the driver's seat and buckle up as we explain what it means when your car is totaled, whether your insurer will cover a totaled car and more.

What Does It Mean When Your Car Is Totaled?

A standard auto insurance policy normally won't pay to fix your car if it's been totaled. When your car is totaled, the insurance company has decided the repairs would cost more than the car is worth, or that the car is simply beyond repair. So, if needed repairs would cost $15,000 but the vehicle is valued at $13,000, the insurer is likely to declare it a total loss. In some states, an insurer might be required to total your car if repair costs would exceed a certain percentage of the car's value.

Once a car is totaled, your insurer might then owe you the actual cash value of your car, depending on what your auto insurance policy says. Your insurer will figure out the actual cash value of your totaled car by considering the following information about the vehicle:

  • Make and model
  • Age
  • Mileage
  • Condition
  • Resale value of the parts and metal (known as the salvage value)
  • Possibility of unseen damage (leaks, alignment issues, etc.)
  • How in-demand the vehicle is in your local auto market

Actual cash value refers to the sale price the car could have reasonably fetched on the open market before it was crashed. It differs from another term you may have heard regarding auto insurance: replacement cost value. Replacement cost refers to what it would cost to purchase a brand-new car comparable to one that's been totaled. Not all auto insurance policies offer replacement cost as an option.

Keep in mind that your auto insurance premium will be higher if you go with replacement cost value coverage instead of actual cash value coverage.

Does Insurance Cover a Totaled Car?

If an insurer totals your car, it's typically covered by two parts of your policy: comprehensive coverage and collision coverage. When you have a car loan or lease, those two types of coverage normally are required. They aren't legal requirements on a car you've paid off, however—the decision to carry comprehensive or collision coverage is up to you. Without coverage beyond the liability insurance that's required in almost every state, you might have to pay out of pocket to replace your totaled car (especially if you're at fault in the crash).

Comprehensive insurance covers damage or disasters not related to a collision. Meanwhile, collision insurance applies when your car is damaged during a crash with another car, an object or property.

In some cases, an insurer might not cover a claim when your car is a total loss. Here are five possible reasons for your claim being denied:

  1. You lack the appropriate coverage, such as comprehensive or collision.
  2. You failed to keep up with your premium payments.
  3. You were driving while intoxicated.
  4. You took too long to report the damage to your insurance company.
  5. You filed a fraudulent claim.

Take note that each insurance company uses different criteria for declaring that a car is a total loss. However, a car that's totaled by one insurer probably would be totaled by another.

Here are three things to keep in mind regarding a claim for a totaled car:

  1. You'll need to pay your deductible before the insurance company will issue a claim check.
  2. If you think your car is worth more than the insurance company thinks it is, you can try to negotiate a higher payout.
  3. After your claim is approved, the insurer usually assumes ownership of the totaled car, which may then be sold for scrap or parts. If you want to keep your totaled car (and that's allowed where you live), the insurance company will subtract the salvage value from your claim payout.

Do You Still Have to Make Loan Payments on a Totaled Car?

Insurance experts recommend continuing to make loan or lease payments until the insurance company sends the claim payment to your lender, even if you can't drive the car.

Once the lender is paid off, what if you still owe money on the car? Unless you have what's known as gap insurance, you're responsible for making up any difference between the claim payout and the loan or lease balance. So, let's say the insurance company paid out the totaled car's actual cash value of $25,000, but you owe $27,500 on the loan financing the vehicle. In that case, you're responsible for the remaining $2,500.

Sticking with that example, gap insurance that you buy on top of your standard coverage could fill the gap between the $25,000 claim payment and the $27,500 loan or lease balance. That means you wouldn't have to come up with the $2,500 difference on your own. Keep in mind, though, that gap insurance kicks in only when you've already got comprehensive and collision coverage. Gap insurance typically costs about 5% of your annual car insurance premium, according to AAA.

How Can a Totaled Car Affect Your Credit Scores?

Car accidents, even those that result in a financed car being totaled, won't directly impact your credit scores. Credit scores are based solely on the information in your credit report and don't include things like your driving record or previous insurance claims.

To make certain your credit stays unscathed, work closely with your insurer and your lender to make sure the loan covering the vehicle is properly paid off and closed. Your financial obligation to make your car payments doesn't go away until the loan balance reaches $0, whether that's because your insurer reimbursed the lender, or you've paid off what was left over after their contribution.

While an accident won't harm your credit scores, it can affect your auto insurance premium, even if your car is totaled after an accident. You might be able to avoid this if you qualify for accident forgiveness coverage, but that benefit isn't available in every state or from every insurer. Insurance companies that do offer it include Allstate, American Family, Geico, Liberty Mutual, Nationwide, Progressive, The Hartford, Travelers and USAA.

Check Your Credit

An auto insurance claim stemming from an accident that totals your car can affect your insurance premium. But it shouldn't affect your credit as long as your auto loan is paid off one way or another. Work closely with your insurer and your lender, and stay on top of your credit. Get a free copy of your credit report from all three credit bureaus at AnnualCreditReport.com. You can also review your credit report for free through Experian, and sign up for free credit monitoring while you're at it. If you plan to finance another vehicle to replace the one you've just lost, getting your credit scores in great shape can help you secure a better loan offer.