What is total loss car insurance?

Many Americans rely on automobiles to help them manage their daily responsibilities. Unfortunately, if you're in a bad enough accident, you may have to replace your entire vehicle, which isn't always cheap. In the United States, the average price of a new vehicle is $41,000.

Total loss car insurance is a type of coverage that can assist you in purchasing a new vehicle if your vehicle is totaled. Collision and comprehensive insurance are typically included in total loss insurance.

What is total loss?

When a vehicle is damaged beyond reasonable repair in a covered claim, total loss car insurance provides coverage. Your auto insurer will assign a claims adjuster to assess your vehicle's worth by checking for damages and considering other variables that depreciate value to determine whether it is damaged beyond reasonable repair. This information is then used by the company, along with market value data, to determine how much your car is worth. The figure they arrive at is known as the actual cash value (ACV).

If the car is worth less than the cost of repairs and has total loss coverage, the insurance company will pay out for the totaled vehicle. When determining whether or not a vehicle is a total loss, there are two primary methods.

The first method, known as the total loss threshold, is determined by the state in which you reside. Total loss is calculated as a percentage of the vehicle's market value. If the damages meet or exceed this limit, the vehicle may be declared a total loss rather than repaired. Not every state has a set total loss threshold. Instead, some people employ what is known as a total loss formula.

Another common method for determining when a car is a total loss is the total loss formula (TLF). It is the difference between a vehicle's fair market value and its salvage value. If the cost of repairs exceeds the TLF outcome, your auto insurer has the option to declare the vehicle a total loss.

Total loss threshold by state

*District of Columbia source

What happens if your car has been declared a total loss?

If you receive a vehicle total loss declaration from your insurance company and do not wish to contest the decision, there are a few things you should be aware of. If you are currently leasing your vehicle, you should notify the leasing company that it has been totaled. If your car is declared a total loss, follow the steps outlined below.

1. Remove license plates. Take both the front and back license plates with you. Leaving your plates somewhere where someone might take them can lead to complications later on. The safest approach is to keep the license plates in your possession until they are no longer on your DMV record.
2. Remove personal belongings. While you're removing your license plates, take a look inside your vehicle. Examine the dashboard, glove compartment, door and seat pockets, trunk, and any other areas where you may have left items. You may not be able to recover anything you left in your car after you turn in your keys.
3. Give your claims adjuster the keys. Once you've finished retrieving your license plates and belongings from the car, you'll need to turn over all sets of keys to your claims adjuster. When you do, they will give you a number of documents to fill out.
4. Complete the necessary paperwork. Fill out and sign all of the documents provided to you by your claims adjuster. By the end of the process, you will most likely no longer be responsible for the vehicle, as most people choose to transfer the car title to their insurer. If you want to drive it again, you could keep the vehicle and refurbish it enough to qualify for a rebuilt title.

How to dispute a total loss

Assume your vehicle is declared a total loss and you disagree with the determination. In that case, the decision can be appealed. When you contest these decisions, you are admitting that your auto insurer undervalued your vehicle and declared it totaled too soon. Here are the steps you should take to start a dispute:

1. Assemble documents and vehicle data. You will need to gather any documents that show your vehicle's true market value in order to prove it. These may include the original sales receipt as well as notations on the various features and add-ons that your vehicle has.
2. Examine current market data on your vehicle. Determine the average current market value of your vehicle's make and model using a resource such as Kelley Blue Book. This tool is great for providing rough estimates. However, it may not be precise enough to refute the total loss declaration on its own. You could get an appraisal for exact figures.
3. Inform the insurer of your position and submit your evidence. Inform your claims adjuster that you believe they undervalued your vehicle and that you are contesting the total loss declaration. Give them your documentation and notes, as well as the market value information you gathered.
4. Request a valuation. If your auto insurer is still not convinced, you can request an in-person appraisal of your vehicle. Without an in-person appraisal, many of these decisions are made based on paperwork and known variables (such as make and model).
5. Consider taking legal action. If, after following all of the steps outlined above, you and the insurance company still cannot agree on whether your vehicle was appropriately valued, you should consider filing a complaint with your state's insurance department. This can be a time-consuming and complicated process, but it may be worthwhile if you believe your auto insurer is acting in bad faith.

How much does a total loss pay out?

The amount of your total loss car insurance settlement is determined by the value of your vehicle. When deciding whether to declare the car totaled, your insurance company is concerned with its actual cash value. This is the value of the vehicle after any damage or depreciation has been taken into account. If the claims process is successful, the insurance company will pay you the actual cash value once all of the necessary factors have been considered.

Frequently asked questions

Is a total loss vehicle a salvage title?

A total loss vehicle is one that is worth less than the cost of repairing its damages. A salvage car is a totaled vehicle that was kept by the owner or resold by a dealership. Salvage vehicles may be required to have a salvage title, which is an official declaration that the vehicle has been declared a total loss.

When should I dispute a total loss declaration?

Insurance companies usually try to get their declarations right the first time, but mistakes do happen. If you believe your vehicle has been declared a total loss in error, you may choose to file a claim with your auto insurer. Although victory in the dispute is not guaranteed, it may prompt your insurer to reconsider your case.

What policies have total loss car insurance coverage?

If you're looking at policies from the best car insurance companies, you might be wondering which ones include total loss coverage. Total loss coverage is provided by two types of auto insurance: comprehensive coverage and collision coverage. If your vehicle is totaled in a non-fault accident, the at-fault driver's property damage liability may also cover the total loss. If your vehicle is leased, you could also purchase gap insurance to cover the remaining loan balance.

Do I need total loss car insurance?

Total loss coverage may be a good idea if you have no other options for driving a personal vehicle and cannot afford to replace it out of pocket if it is totaled. The loss of a vehicle can result in a loss of income for many people. Total loss insurance can provide you with critical financial protection in these situations.