We all know how expensive even the simplest car repairs can be, so when the damage is significant, the cost of repairing your car can exceed its value. This is when the question of when do insurance companies total a car is likely to arise. If you are involved in a serious accident where there has been significant damage to your car, the chance that your insurance provider will call you a total loss is high.
After an accident, an appraiser will estimate how much repairs to your vehicle will cost. then your insurance company will decide if the repairs plus salvage value is greater than the actual cash value of your vehicle. if this is the case, says insure.com, they will treat your vehicle as a total loss.
Reading: When will insurance total a car
what about a wrecked car
The salvage value of your vehicle is calculated by considering the resale value of the parts and metal against the cost of repairing the damage. The actual cash value of your car is how much it is worth after taking depreciation into account. Insurers will use the make and year of the car to help determine its actual cash value. If your vehicle is going to cost more to repair than its actual cash value (ACV), your insurance company will declare it a total loss, explains American Family Insurance. when this happens, you will have two options:
- take a cash settlement
- hold the ransom
Most people choose to accept a cash settlement, which means the insurance company gives you a check for the ACV on your vehicle. this amount will be calculated through a vehicle appraisal database, but depending on the balance, each insurance company has its own way of calculating your total vehicle value. You can challenge this amount if you don’t think it’s fair, explains insure.com, but you should expect to pay some money out of pocket to get a higher amount from your insurance provider.
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If you decide to keep your car or retain the salvage, the balance suggests considering the following:
- repair costs
- pass inspection
The insurance company wrecked your car for a reason, and unless you know something they don’t or are a skilled mechanic, repairs may be out of your budget. A salvaged vehicle will require an inspection and you need to make sure the vehicle can pass it if you ever want to be able to drive or sell it.
Finding an insurance company that will insure a car with a rebuilt title can be difficult. this is because these cars are considered higher risk. If you still owe a lender money, they will decide whether or not you can keep the vehicle, so be sure to check with them before making your final decision.
total car payment
once the insurance company deems your vehicle has been totaled, they will pay you your acv in the form of a check. if you own your car, then you get the full amount. however, if you were financing the vehicle at the time it was totaled and you still owe money, the lien holder will receive payment first. after they have been paid in full, if there is any money left over, it will go to you. keep in mind that you will have to pay your deductible before the insurance company will pay for the total vehicle.
As long as you have insurance and can pay your deductible, your acv will be paid when you join. this amount can be used to pay off your loan if you have one, explains insurance.com. Of course, there can be problems if you owe more than your vehicle is worth.
have differential insurance
Owing money to a finance company when your car is totaled can be a problem because, unfortunately, you may owe more on your car, truck, or SUV than your ACV amount. This is known as being upside down on your car loan and it’s exactly when you need to have gap insurance coverage. So if your vehicle is totaled and you still owe the lender $20,000, but the ACV on your vehicle is only $15,000, then you have a $5,000 gap. gap insurance will ensure that this amount does not come out of your pocket.
It is important to note that the gap coverage will only cover this gap for auto loans. If you purchased your vehicle through a home equity loan, gap insurance will not pay the difference between what you owe and the value of your vehicle. gap coverage will also not pay for:
- extended warranties
- credit life insurance
- loan rollover balances
- fines and late fees
Another type of additional coverage that will come in handy when your car is totaled is new car replacement coverage. You’ll find that this type of coverage means you can replace your car with one of an equivalent make and model. This type of additional coverage is usually only available on vehicles that meet certain requirements, but when combined with gap insurance, it can ensure that you are well taken care of if your car is totaled. having both coverages will also help combat any depreciation issues you may encounter.
being in an accident where the cost of repairing the damage to your vehicle exceeds your acv means your insurance company will likely consider you a total loss. If this happens, you need to understand what your options are and how the insurance company will proceed. Having some additional coverage is a good idea if you have a car loan to make sure the loss doesn’t leave you in a financial bind.