What Does It Mean to Total Your Car and How Does the Insurance Company Make That Decision?
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What Does It Mean to Total Your Car and How Does the Insurance Company Make That Decision?

If an auto insurance company determines that your vehicle was totaled in a crash, it doesn't necessarily mean that it sustained significant damage

May 27, 2021

When it comes to crashes, you often hear that a vehicle was declared a total loss by the auto insurance company. Many people believe that a total loss declaration relates to the amount of damage or the severity of the crash. But vehicles can be declared a total loss as a result of both a major collision or even something as insignificant as a minor dent or ding. It's all about the vehicle's value.

It's about the Actual cash value Figure

Determining whether a car is a total loss is a result of a calculation of its actual cash value at the time of loss. The actual cash value is determined by the vehicle's condition, age, make, model, demand, 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.

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.

One insurance company May Not make the same determination as another

Each auto 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.

Actual Cash Value vs. Amount of 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 and you will likely be offered about $1000, the value of the vehicle.

Taking a cash settlement from the insurance company and keeping your totaled vehicle

One option for your damaged vehicle is to take the cash settlement for the actual cash value of your vehicle if your state allows it, which North Carolina does allow. 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."

Taking a settlement value from the insurance company and saying goodbye to your totaled vehicle

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 lien holder 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.