Following a car accident, you might be counting on your insurance company to fix up your vehicle so you can get back on the road. Unfortunately, that’s not always the outcome. There are instances where the damage is so severe that your car is considered a total loss, or “totaled.”
When a car is totaled, it essentially means that the cost to repair it exceeds the car’s value. Some states even have regulations that mandate insurers to declare a vehicle totaled if the repair costs surpass a certain percentage of its value.
Dealing with a totaled car can be quite distressing, and navigating the reimbursement process can feel daunting. However, you don’t have to tackle it alone. Keep reading to learn about what typically happens after your car is totaled in an accident, and we’ll provide some crucial tips to ensure you receive fair compensation for your claim.
What is a Total Loss?
When a car is considered totaled, it means the cost of repairing it would exceed its actual cash value (ACV). Many states employ a threshold, often around 70% of the car’s value in repairs, to determine if it’s economically feasible to fix the vehicle.
For instance, let’s take a car valued at $5,000 with repair estimates totaling $4,000. In this case, considering the 70% threshold, it wouldn’t be practical to repair the car because the repair costs are almost as much as the car’s value. Consequently, the insurance company would probably classify it as a total loss.
Filing a total loss claim
After your auto insurer concludes that your car or truck is totaled, it doesn’t undergo repairs and returns to your possession. Instead, you’ll receive a payment based on the actual cash value (ACV) of the vehicle, minus any applicable deductible.
Subsequently, your insurer takes ownership of the car. This process is often likened to a “forced sale” since your insurance company essentially purchases your damaged vehicle instead of opting to repair it.
To start the process, you’ll need these documents:
- Vehicle bill of sale or sales receipt.
- Odometer statement.
- Certificate of title.
- Power of attorney.
Your insurer will rely on the bill of sale and the odometer statement to calculate the payout for your claim. Additionally, you’ll be required to provide the certificate of title to transfer ownership of the car to your insurance company.
While it’s not mandatory, having a power of attorney in place allows your insurer to manage the title transfer autonomously. This means that if there are any complications during the process, you won’t have to navigate between the DMV and your insurance carrier.
Putting a price tag on your totaled vehicle
Determining the worth of your car after it’s been totaled can vary. Typically, your insurer will assess the actual cash value (ACV) by considering your vehicle’s condition before the accident and the market value of similar used vehicles in your area.
It’s important to note that ACV differs from book value, which may not accurately reflect current market prices.
To ensure you receive a fair valuation, it’s advisable to discuss your insurer’s specific process for determining ACV. Make sure they’re comparing vehicles of the same model, with similar options and mileage.
If you’ve recently had significant repairs or enhancements done to your vehicle, such as a transmission replacement or a new paint job, inform your claims adjuster and be prepared to provide receipts.
While your adjuster may acknowledge the added value of these improvements, you might still feel that the valuation isn’t fair.
In such cases, communicate your concerns with your adjuster and explain why you believe your vehicle’s value should be higher. If there’s a significant discrepancy and you’re unable to reach an agreement with your insurer, check if your policy includes an appraisal clause.
With an appraisal clause, both you and your insurer will appoint an appraiser to evaluate the ACV independently. They’ll attempt to reach a consensus, and if they can’t, they’ll select a neutral third-party appraiser to act as an umpire.
What about GAP coverage?
Once the value of your vehicle is determined, you’ll receive your settlement payment either via check or direct deposit into your bank account.
If you still owe money on the car, the settlement check can be issued jointly to you and your lender, but you might need to authorize your insurer to pay your lender directly.
In cases where the insurance payment is less than your outstanding loan amount, you’ll typically be responsible for covering the difference out of your own funds.
However, if your loan includes guaranteed asset protection (GAP) coverage, you may not have to worry about paying the shortfall between your debt and the insurance settlement. GAP coverage, often available as an optional add-on at the inception of the loan, can relieve you from this financial burden.
It’s worth noting that, depending on the terms of the GAP plan, you’re still responsible for paying your deductible.
Your insurance policy might also include auto replacement assistance, which could help you acquire a newer vehicle or one that’s comparable to your totaled one.
Furthermore, it’s important to understand that while the accident itself won’t directly impact your credit score, failing to settle outstanding loans could have adverse effects. Therefore, ensuring you’ve cleared your auto loan is crucial for maintaining a healthy credit standing.
Handing over your totaled vehicle
Following a total loss, it’s standard procedure for the insurer to take possession of your vehicle. To transfer ownership, you’ll be required to sign your title over to the insurance company and then physically hand over the title to them. If you’re unable to locate your title, you can apply for a replacement through your state’s motor vehicle department.
If there’s still an outstanding loan on your car, your lender will hold the title certificate, and you’ll need to grant them permission to transfer it to your insurer.
Additionally, you’ll need to authorize the repair shop where your vehicle is being held to release it to the insurer. Before doing so, ensure you’ve removed all personal belongings from the car. Depending on state regulations, you may also be required to remove the license plates.
Can I keep my totaled car?
In certain situations, not every state will allow you to hold onto a wrecked vehicle following an accident. However, in cases where it’s permitted, some owners opt to retain the car instead of surrendering it to their insurance company.
This decision often arises when the damage to the vehicle is primarily cosmetic, when the car holds sentimental value, or if the owner possesses expertise in car repairs or part resale. In such instances, the anticipated salvage value reduces the payout from your insurance settlement.
If you decide to keep the vehicle, it will likely be branded with a salvage title. Due to its involvement in a significant accident or sustaining major damage, its value typically depreciates. Consequently, obtaining insurance coverage for it post-repair might be challenging, and the salvage title could pose obstacles when attempting to sell it.
Moreover, if the vehicle remains drivable, such as in the case of hail damage, and you opt not to repair it, you may find that physical damage coverage is no longer an available option.
What to do with your car insurance after a total loss?
Once the settlement and ownership transfer are finalized, it’s crucial to promptly remove the vehicle from your insurance policy, unless your insurer handles this automatically.
If the vehicle constituted your sole coverage under that policy, it’s wise to maintain the policy to ensure you’re protected while driving other vehicles until you acquire a replacement. If you opt not to replace the vehicle, obtaining a “named non-owners policy” is advisable.
Following the circumstances surrounding your accident and claim, there’s a possibility that your insurance premium could increase once your car is deemed totaled.
However, if you’ve maintained a clean record without any at-fault accidents for a considerable period—typically spanning several years—you might be eligible for accident forgiveness.
A possible tax break
In the event of your vehicle being declared totaled, you might be eligible for a federal income tax deduction concerning the unreimbursed portion of your loss.
This deduction falls under the category of casualty loss and is not applicable if the accident resulted from willful negligence or actions on your part.
As with any matters concerning tax savings, deductions, or planning, it’s advisable to consult with a tax professional regarding your individual circumstances.
It’s essential to note that the actual benefit on your tax return could require a substantial unreimbursed loss, depending on factors such as your income and other deductions.
Unless your vehicle was totaled in a federally declared disaster, you can only claim the casualty loss deduction if you itemize your deductions rather than opting for the standard deduction.
To determine the deductible amount, you need to subtract $100 from the unreimbursed loss. Additionally, you can only take a deduction up to the total amount of your casualty losses for the year, provided it doesn’t exceed 10% of your adjusted gross income.
It’s worth noting that the IRS calculates the loss amount differently from how insurers do. For more information on the casualty loss deduction, it’s recommended to speak with a tax professional or refer to IRS Publication 547.
Finding your next car
Your insurance might help with a rental car expense, but it’s usually just for a short period. Once you start sorting out your claim, it might be a good idea to think about purchasing your next vehicle.
If you’re thinking of financing the purchase, it’s a smart move to get preapproval from your lender. This not only saves time but also gives you a better bargaining position when negotiating.