No one likes getting into car accidents. In addition to being a painful and possibly traumatic experience, it also creates a lot of difficult situations that you will need to work through in order to have a driveable car again.
In some cases, however, your car insurance company might declare your car a total loss. What is a total loss, and what does it mean for your car insurance?
Today, learn more about total loss and what to do when your vehicle becomes one of many salvage cars that wonít be seen on the roads again.
What is Total Loss?
Total loss is a term used by insurance companies whenever the actual cash value (ACV) of a car is less than what it would cost to repair the vehicle. In this case, your vehicle is considered to be totaled, or a total loss.
The insurance company might also determine that a car needs to be totaled rather than repaired if the car cannot be repaired or it cannot be repaired to modern safety standards. What happens next after experiencing a total loss incident is dependent on your loan situation, your insurance situation, and the insurance company that you are working out.
If your policy includes total loss car insurance, you would receive a payout equal to the actual cash value of your vehicle instead of having the cost of your repairs covered. In many cases, this amount might be less than you think your car is worth, but the number is determined by the insurance company.
However, the money will first go to your leaseholder if you still owe money on the vehicle, so this can make it very difficult to replace the vehicle.
How Much Will My Car Insurance Pay Out?
What happens in terms of payout after an accident is dependant on a number of factors:
- Who was at fault for the accident?
- Is the vehicle covered by collision or comprehensive coverage?
- Does the at-fault party have property damage liability insurance?
If your car is covered, you can expect to receive the actual cash value of your vehicle as it was right before the accident, less anything that is paid out to your lender if the car is not yet paid off and your deductible.
The insurance company adjuster will be the one to determine how much they will payout, but you do not have to agree to their numbers if you find them to be incorrect. If you cannot agree, it is possible to request an independent appraiser to get involved in finding out what you should be receiving for your car.
Also, keep in mind that the car insurance company of the driver at fault will be the one paying out in most cases, so you will need to work with them to figure things out.
Can I Keep The Car and Junk It Car Myself?
In many states, it is legal to request that you get to keep the car after the incident. While doing this to get the car repaired can be costlier than you might imagine, you may want to junk the car yourself rather than letting the insurance company salvage it.
Junk cars can bring in more money than you might imagine. However, keep in mind that your insurance company will subtract what they would have got for salvaging the car from your payout, so this might not be the best option in all cases.
If you do take this route, itís important to make sure you junk it the right way. Research to find out the best salvage yards in your area, or try to find someone looking for your carís parts to resell the vehicle to for parts.
Keep in mind, however, that this is not allowed in all states. If you are interested in keeping your vehicle after it is totaled, either to have it reconstructed or to salvage it, make sure to tell your insurance company this as soon as possible. They can adjust the appraisal and let you know what you would be receiving so that you can make an informed decision.
Moving Forward With Gap Insurance
Another interesting conundrum that comes up during a total loss incident, particularly on newer vehicles, is that money is still owed to a lender on some totaled vehicles. In some cases, the ACV paid out through insurance will not be enough to pay off the remaining loan.
What happens then?
If the driver has gap insurance, that insurance coverage will put up a certain amount to help cover the gap that is left in the insurance. However, if they do not, they will have to continue paying on the loan until it is paid off in full even though they no longer have the car.
The exact terms of what will happen in this situation depend on the insurance policy in place and the terms of the loan. Before signing any type of car loan, it is important to decide if you want to protect your investment with gap insurance or if you are ready to take on some degree of risk until the car is paid off in full.