Total Loss in Car Insurance | Explained

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According to data from 2019, more than 10 million vehicles are involved in accidents every year, with various levels of damage.

Unfortunately, this could happen to everyone, which is why it’s crucial to own adequate car insurance to cover the damages in case anything happens, especially if the car is declared a total loss.

But what does that mean? We’re here to let you know more about it. In this article, we’ll explain:

  • What is a total loss in car insurance?
  • When is a vehicle considered totaled?
  • How does getting a payout for a totaled car work?
  • What happens if your car is declared a total loss?
  • How can you gain financial freedom with Infinite Banking and Whole Life insurance?

Hopefully, this article will help you find out everything you need to know about a total loss in car insurance.

What is a total loss in insurance?

If a vehicle is declared a total loss, it means that it was involved in a car accident where the damage to the car exceeds its value and they’re so significant it would cost more to repair the car than to purchase a completely new one. This term can also apply if your vehicle was stolen, although theft is not incorporated with every sort of car insurance, so you should check this with your auto insurance company first. This is where total insurance comes into play.

What is the value of the car?

Your auto insurance company will have to determine the value of the car before deciding whether the damages cost too much to repair.

An important thing to note is that the value of the car or actual cash value (ACV) is not the cost of the car when you purchased it, but its current market value. Additionally, you may be surprised by how much the cost of your vehicle decreased as time went by and what value the insurance companies give it.

The insurance company uses various factors to determine your car’s ACV and they’re usually based on age, condition, resale value, mileage, prices of similar vehicles in the area, and other factors.

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Types of car insurance policy

You can get a couple of different car insurance policies from your insurance company that you should know about before we continue. These coverage options can be applied when a car is totaled, with different levels according to policy features.

Standard liability insurance

If you own a vehicle in the US, you should already own this car insurance policy because various forms are required in every state.

This type of auto insurance covers car accidents on the fault principle of negligence. For example, when you’re involved in an accident and determined as your fault, the other driver will get a payout from your insurance company for damages or replacements. There are limits to this, depending on the policy.

This policy also applies if you live in a no-fault car insurance state because that type of insurance applies to injuries or losses linked with the accidents, not to vehicle damage.

To put it simply, this type of auto insurance doesn’t apply to your vehicle, but if the other driver is at fault, you can apply for a third-party vehicle damage claim with their car insurance company.

Collision insurance

This car insurance policy can be purchased as supplemental coverage at any auto insurance company. In case you get into a car accident, owning collision coverage will ensure that you’ll get a payout for any damages made, no matter who’s fault it is that the accident happened.

However, collision coverage can have a higher cost, as it depends on the value of your car. If your vehicle is costly, get ready to pay higher insurance quotes to your insurance company.

This insurance has more benefits than the standard liability one because you can apply for payout at your insurer even if the accident was your fault.

Comprehensive insurance

Unlike the previous two types of insurance mentioned above, this one cannot be applied to common traffic accidents. Instead, comprehensive coverage can be used in cases where a totaled vehicle gets damaged in other scenarios.

For example, this insurance could be helpful if a tree fell onto your car or there was a fire. Owning this type of insurance ensures that you’ll get compensated for damages or replacements that need to be made for your totaled vehicle.

Comprehensive coverage and collision coverage are combined in insurance quotes to cover all of the possible misfortunes that could happen.

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When is a car considered totaled?

When car insurance companies claim a car as a total loss, the insurer has to handle many things depending on the situation, making the situation serious.

Regarding determining the actual cash value of the totaled car, different laws apply depending on the state you live in and your insurance company. All of them depend on a certain percentage.

For example, for those living in Alabama, the rule states that the vehicle is considered a total loss when the obtained damages are greater than 75% of the car’s actual value. So if the actual cash value of the totaled car is determined at $4,000 and the damages sustained go over $3,000, the vehicle would be considered totaled. This percentage usually goes somewhere between 70 and 80% of the ACV.

In some states, whether the car is totaled or not depends on the law, but in some of them, determining the case’s outcome is solely done by the car insurance companies. Additionally, a car could also be considered a total loss if stolen, depending on the policy.

Do deployed airbags mean that it’s a total loss?

Just because your airbags deployed during an accident doesn’t necessarily mean the damages are significant enough for it to be considered a totaled car. As we mentioned before, as long as the repair costs of replacing the airbags don’t exceed the car’s actual cash value, your vehicle won’t be declared a total loss.

Getting insurance payout for a total loss

As explained at the beginning of this article, the car’s actual cash value (ACV) is defined by the car insurance company. It represents your car’s pre-collision value minus the deductible. The total loss value is calculated by incorporating actual cash value, salvage value, and repair cost information.

Total loss claims and actual cash value

Suppose you want to get an insurance payout for your total loss claim. In that case, you have to own either property damage liability (PD) or collision and comprehensive insurance policy, all of which we got into more detail about earlier in the article.

Although we’ll explain all of the steps later, the first action you need to take after an accident is to contact your insurer, after which they’ll send a claims adjuster to you to determine the scope of the damages. If the damage is greater than the car’s actual cash value, the vehicle will likely be declared a total loss.

Some states have a total loss threshold (TLT), and some utilize the total loss formula (TLF).

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How do you get paid for a total loss?

Once the adjuster determines the car’s ACV, which is based on pre-loss market value and the size of the damages, you’ll find out whether the car is totaled or not.

Once you agree with the insurer about the vehicle’s status, you’ll get the settlement payment if you’re the owner of the car, regardless of your insurance quotes. However, in the case of a leased or financed car where you have an active car loan, the funds will be paid to the financial company. This is where gap insurance is helpful to pay the remaining balance.

In the end, you’ll get the check from your insurance company titled “property damage settlement” or “vehicle damage settlement,” and you’ll also get other relevant information and the claim number.

What happens if your car is a total loss?

Depending on which state you live in, whose fault the accident was and what type of car insurance you own, you could get a payout either from your insurer or the other driver’s. Once you file your insurance, they’ll assign you an insurance adjuster. Their job is to determine how much money their company should pay you. Next, appraisers will evaluate the repair costs, including labor fees, salvage value and replacement parts.

Although different companies require you to do other things after an accident, here are some of the steps commonly taken after meeting with the claims adjuster.

  • Give them the car keys and remove your personal items and license plates from the car.
  • If you have any additional keys, send them along with the car.
  • Wait for the car insurance company to let you know whether your car is considered totaled or not.
  • If you’re leasing or financing the car, call the company responsible for letting them know your insurer will be getting in touch with them.

The faster you take these steps, the better. After your car is taken to the insurance company and the body shop, they’ll likely notify the DMV to let them know it’s been totaled. If the insurer declares the vehicle as “salvaged,” depending on the state, it can end up on a salvage yard with other total loss vehicles.

However, sometimes your car may seem fine to you but would still get determined as totaled by your car insurance company. What can you do in this case?

Do you agree that your car is a total loss?

If you agree with the insurer’s decision that your car is a total loss, you must fill out adequate paperwork. After this, they’ll issue payment if you’re the owner of the vehicle.

Steps to take

However, whether you agree with the insurer’s decision or not, you should be ready to review their offer to ensure you aren’t getting scammed.

Know what you’re selling

Although you may be surprised by how much your vehicle’s actual cash value decreased since you purchased it, you should still know its features to ensure that the pre-accident value isn’t tampered with.

If you don’t know all of your car’s features or don’t have the sticker, contact the car dealer you purchased the car from and ask them to send you the list of the features for informational purposes. They’ll likely have this as they keep information about all the vehicles they sold.

Ensure you know the full value of the totaled vehicle you’re selling to the company.

Compare prices

Actual cash value depends not only on the car’s age, mileage and features but also on the prices of the same models in the area. Use some of the car websites available online to see the prices of cars similar to yours.

Get a written settlement from the insurance company

Once the insurance company contacts you to let you know about their offer, ask them to email it to you and make sure they include the valuation report or Certified Collateral Corporation (CCC) report.

This report is used to determine the settlement amount, and it has a list of the car’s features. Compare it to the list you got from the dealer to ensure everything matches.

Assitinaly, ask them to show you the sales tax they’re obligated to pay, the payoff lien amount, in case you have loans on a car, and the net settlement amount you’ll receive.

Counteroffer

The previous measures of knowing your totaled car’s features and the prices of similar vehicles in the area also ensure you have your counteroffer ready if you don’t like the insurer’s initial offer.

Additionally, if you had any work done on the car, find receipts as these things can add value. As long as you have the proper documentation and reasonable expectations, you’ll be good to go.

Can you keep the totaled car?

Some companies may let you keep the totaled car, but it will lower your settlement check or add additional costs. Some damages aren’t worth repairing and the insurance rates for that car in the future will be higher. Sometimes it’s better to purchase a new car.

Do you still need to pay a loan for a totaled car?

If your car is financed or a rental car, the payout will usually go to the leasing company financing it to take care of the loan. Any extra money will go to you. Of course, you’ll need to pay for the deductible first. This can be a problem if you have just purchased a new vehicle.

Also, you could purchase gap insurance coverage, which provides coverage for the “gap” between the car’s market value at the time of purchase and its pre-collision value. Your lender may even require gap coverage.

Do you think that your car isn’t a total loss?

If you don’t agree with your insurer about the car’s valuation, the only steps you can take are accepting their valuation, either way, negotiating or filing a lawsuit.

Negotiating with the claims adjuster

In case you want to negotiate with your claims adjuster, take good luck with the steps we described in the earlier section. You need to have an adequate basis for disagreement if you want to negotiate.

Make sure you know your car’s features, new additions, prices of similar vehicles in your area and prepare a reasonable counteroffer.

What if the total loss wasn’t your fault?

A vehicle can be declared a total loss even when no one’s at fault. For example, a tree could topple on your car and ruin it.

If you’re in an accident and it’s the other driver’s fault, your insurer could ask for the insurance check from the driver’s insurer. This could also mean you’ll get reimbursed for the deductible.

Gain financial freedom

Accidents can happen to everyone, no matter who’s a fault it is, which is why it’s essential to have adequate insurance in case of emergency. However, funding a bunch of different insurance policies doesn’t mean that you’re fully taking advantage of them.

We’re here to teach you about the concept of Infinite Banking, which can quickly help you get a new car. Here is some of the crucial information you should know about it.

The only thing you need to make this concept work is owning Whole Life insurance.

Here’s how it works. Infinite Banking is a strategic method for utilizing your life insurance to create an endless banking system. To put it in other words, Infinite Banking means being your own banker, just without the high fees and interests that aren’t good for you.

When you own an overfunded life insurance policy, you can borrow money from yourself using your policy’s cash value and repay it later. When you borrow money from yourself and pay it back with the set rate of return, you’re becoming your own bank.

Infinite Banking involves:

  1. Overfunding (with after-tax funds) a high cash value life insurance from a life insurance company.
  2. Accumulation of Cash Value (tax-free) throughout the years you are a policyholder of your life insurance policy.
  3. Tax-Free Loans taken out against your life insurance policy’s cash value to use for your financial expenses.

All of these culminate to create your bank. Even when you take out a loan and spend that money elsewhere, your Whole Life insurance policy still earns dividends.

Infinite Banking is an excellent step to take if you want to reach your financial goals, control your finances and build wealth using the life insurance policy.

Final thoughts

Getting a payout from your car insurance company for a total loss vehicle is usually a simple process. However, it can get complicated if you disagree it’s a total loss or don’t pay attention to specific details.

Hopefully, this article helped you find out everything you need to know about the total loss in car insurance and what to do if your vehicle gets declared as a total loss. We also hope that it made you interested in the concept of Infinite Banking with Whole Life insurance.