What Does It Mean for Your Car to Be "Totaled?" And What Happens After That?
To say your vehicle is 'Totaled' doesn't necessarily mean that it sustained significant damage in a crash
When it comes to car crashes, you hear the term "totaled" thrown around quite a lot. It seems as though many people believe that the term relates to the amount of damage or the severity of the crash, and not its value. But, the truth is, vehicles can be totaled as a result of a major collision or as the result of an impact by a bicycle.
What's the cash value?
Determining whether a car is totaled is calculated by its actual cash value at the time of loss. The actual cash value is the total worth of your vehicle factoring in depreciation. A newer car will typically have a higher value than an older car.
Totaled doesn't necessarily mean significant damage in a crash.
The actual cash value is determined by the vehicles condition, age, make, model, demand for the vehicle, the resale value of the parts and metal (salvage value), and the potential for unseen damage. With a smaller collision, there will be less unseen damage than if you have a major collision.
Role of the insurance company
Each insurance company has different criteria they use in determining whether or not your vehicle should be declared a total loss—but they all work in a very similar way. If a vehicle is declared a total loss by one insurance company, another insurance company will probably also consider it a total loss. But that's no guarantee.
When the cost to repair the vehicle exceeds the actual cash value, it will usually be declared a total loss. Some state laws vary and require a total loss declaration for lower damage amounts. Other times, if damage is so severe that the vehicle cannot be repaired safely, it will also be declared a total loss.
Value vs. damage done
Let's say, for example, that you have a vehicle currently worth $30,000. Then let's say that you bump someone else's car in the parking lot doing approximately $800 worth of damage to your vehicle. The damage amount comes nowhere close to the value of your vehicle, so you will get either a check for the amount of the damages or your damages will be repaired directly for you.
Now let's say that you have a vehicle only worth about $1000. Then let's say there is a hailstorm that dents your hood, roof, and trunk for damages of approximately $2000. In this case, the amount of repairs exceeds the actual cash value of your vehicle. It will be declared a total loss.
Your options for a 'totaled' vehicle
When a vehicle is declared a total loss, you generally have two choices.
One is to take the cash settlement for the actual cash value of your vehicle if your state allows it. In this case, the title and damaged vehicle is returned to you deducting the salvage value of the vehicle. The vehicle is then branded as a salvaged vehicle and has a "salvaged title."
Your second choice is to take a settlement value, which is determined by a vehicle valuation database. This amount goes directly to you if you own the vehicle out right. If you have a loan, the payment will first go to the lienholder and any extra refunded to you. Most people choose this option as it typically gives them cash in hand to purchase a new vehicle and they don't have to worry about the damaged vehicle anymore.