If you’re involved in a car accident, the insurance company may deem your car “totaled.” That usually means you’ll get a check, but often times it ends up costing you money in the long run. Here’s what to do when you’re told your car is a total loss.
So, your insurer just totaled your car — here’s what to do next
When a vehicle is totaled, that means the damage is so extensive that the cost to repair it would exceed what’s it’s worth. From there, the insurance company is obligated to pay you a settlement, which is the fair market value of your vehicle, taking into account depreciation.
As you can imagine, that’s not likely going to be enough money to get you back into what you were driving when the accident occurred. So, in many cases, a totaled car will mean that you’ll have to buy another vehicle and re-up on a car note. That’s why many motorists hate to hear that their car is being totaled.
How do insurers determine whether to total a vehicle?
Insurance companies use several factors to determine whether to total a car or not, such as the specific condition of the vehicle, state laws and the insurer’s own policies, which vary depending on the company.
Money expert Clark Howard says regardless of whether you think your vehicle should be destined for the junk yard, insurers often use a mathematical formula to determine if it’s worth saving.
“If the airbags deploy and the car is four years old or older, they’ll likely total it because the airbags are such an expensive part of the car to fix,” he says.
Just one airbag can cost anywhere from $3,000 to $6,000 to replace, depending on the make and model, according to
. Insurers would rather write the car off than spend that kind of money.
“If the insurer says that the fixes will be 70% of the car, oftentimes they’ll total it,” Clark says. That means that you’re back to square one as far as vehicles go. Meanwhile, the insurer goes their merry way — and your premium likely goes up.
If your car is totaled: Should you accept your insurance company’s settlement?
Clark says when it comes to accepting the insurance company’s settlement, consumers do have some bargaining power that they may not be aware of.
“Some people may be able to work out an agreement with the insurance company to keep their vehicle as a salvage car,” he says.
The thing is, often insurance companies won’t disclose all of your options when they total your car. If your car is totaled, the insurer has the option of offering you either a full settlement (you give them the car and the keys) or a partial settlement.
With a partial settlement, you have two options, according to
- You can salvage the vehicle or sell it as-is
- You can donate the vehicle to charity and write it off on your taxes
If you want to save money, there are some instances where having a salvaged vehicle may make the most sense for you.
If your car is totaled: Should you salvage your vehicle?
To out more about the process for salvaging a vehicle, we talked to a public claims adjuster, someone not tied to one of the major insurance companies.
Elvis Dafrawi, who is based in Atlanta, says insurance customers often lose money for one simple reason. "Most people don't have a general understanding of how insurance works, so they agree with the insurance company. You should never agree with the insurance company. They are a financial organization. They look out for their own interests."
Dafrawi says that if your car is totaled, it’s in your best interest to work out a settlement with your insurer that would keep the most money in your pocket.
“You can agree to the damages,” he says. “It works like this: Let’s say you have an accident and the car is worth $5,000, but to fix it costs $6,000. The insurance company is going to total it for financial gain.”
That means they’re only willing to pay $5,000. “So what you can do is talk to the insurer and tell them I want to accept your offer,” Dafrawi says. From there, you can shop around to get the vehicle fixed, oftentimes for much less than what the insurer has calculated.
The issue with this is that either the insurer or owner will likely have to declare the vehicle a salvage car. That means it must be issued a salvage title. If you fix it and decide to sell it down the line, a prospective owner will be able to see that this was a salvage car.
Dafrawi said that depending on how the car is declared — what the insurance company writes down — will determine the process. The thing is, the DMV makes it easy to re-register a salvage title.
3 questions to ask when deciding whether to salvage your vehicle
- Is it in your budget? Most importantly, you need to determine if you can foot the repair bill with the partial settlement from the insurance company. If you don't have the financial means to pay for the fixes, having a salvage car will be of little benefit.
- Does your low-value car need major repairs? If your car is relatively low value, it may be best to consider a newer vehicle rather than spending a lot of money to get it fixed, especially if you were taking it to the mechanic frequently before your accident.
- Is the engine damaged? Find out exactly what needs to be replaced or repaired. If your vehicle needs extensive engine work, it likely won't be worth it. But if the damage is mostly cosmetic, although costly, it may make sense to save a car that still runs great and is intact.
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