When Is a Car Considered Totaled?

by COUNTRY Financial

A car is considered totaled when the cost to fix damage is more than the vehicle is worth. In insurance terms, this situation is also known as a total loss vehicle.

Most total losses occur due to an accident, but it doesn’t have to be a severe one. Some cars simply cost more to repair. A car can be considered totaled even after a seemingly minor incident, and sometimes (though rarely) even due to a mechanical failure. Any time the cost of repairs eclipses the car’s value, the car is totaled.

Once a vehicle is deemed a total loss—regardless of the cause—insurers typically do not cover repairs, and the vehicle is considered beyond economical repair.

Still, you do have some options if your car is totaled.

How do you determine if your car is totaled

First, you don’t decide whether your car is totaled—your car insurance company does. It uses several methods to do so:

• Repair costs vs. value: If the cost of repairing the damage exceeds (or comes close to) the car’s book value at the time of the crash, the vehicle may be totaled.
• Percentage threshold: In many states, a car is considered totaled when damage surpasses a certain percentage of its value. This threshold varies depending on state regulations. 
• Insurer judgment: Even if repairs are technically possible, the insurance company may still declare the vehicle totaled if the repair costs are deemed too high. As mentioned earlier, some cars cost more to repair than others, which means a car doesn’t have to be completely destroyed to be considered a total loss.

What happens when a car is totaled?

What happens next depends largely on who caused the accident:

• If the crash was an at-fault accident and your car is deemed totaled, your own insurance company should pay you the value of your vehicle, provided you have the appropriate coverage.
• If the accident was not your fault and the at-fault driver is insured, their insurance company should compensate you for the value of your car.

How is the car’s value decided?

Your car’s payout is typically based on its actual cash value, which reflects the vehicle’s worth just before the accident, taking age, mileage, condition and market value into account.

What happens if you total a financed car?

A financed car is one that you are still paying off through a lender, such as a bank or credit union. Totaling a financed car can be stressful, but the process is usually straightforward:

1. First, you’ll still be responsible for paying off the remaining loan balance.
2. Then, the insurance claim payout is typically sent to the lender and applied toward what you owe.
3. Finally, if the loan balance is higher than the actual cash value payout, you must cover the remaining difference out of pocket.

What happens if you total a leased car?

Totaling a leased car is different because, technically, the leasing company owns the vehicle—not you. You won’t see a check for the car’s actual cash value, as your insurance will pay it directly to the leasing company instead.

Once the payout is issued, the lease is typically terminated. If the insurance settlement does not cover the full amount owed on the lease, you may be responsible for paying the remaining balance out of pocket. Many lease agreements require GAP insurance, which can help cover the difference.

In some situations, if the car’s value exceeds the remaining lease payoff, you may receive a refund for the excess amount. Don’t bank on this, though; it’s much less common.

All this is to say, be careful with financed or leased cars. Having one declared totaled can be a major headache.

Final thoughts

Understanding what happens if a car is totaled is important. It can help you determine the right car insurance coverage to buy and could even make you a safer driver.

To ensure you’re prepared for an accident where your car is totaled—especially if your car is financed or leased—talk to your insurance agent today. They can help you determine how much coverage you need and answer any questions.