Published: February 2015
You've been in an accident and your car is in pretty bad shape — but is it totaled? Here's a look at how insurance companies typically make that determination, and some insight on what happens once you file a claim.
Once you initiate an insurance claim, you'll typically need to get the damaged vehicle inspected to determine the cost of repairs. This usually means visiting an auto body shop (your insurance company may recommend a specific shop or shops in your area) for an estimate of the repair costs, including both parts and labor. Your car may be a pile of mangled metal or only badly damaged, but, either way, if it's deemed to be beyond repair, or if the estimate to repair it is more than what the car is worth, it can be considered a total loss, says the Insurance Information Institute (III).
In some instances, you'll find that the repair estimates come in just under the market value of your car — what then? Is it still considered a total loss? Well, in some instances, a car can still be deemed a total loss if the cost of repair falls within a certain percentage of the vehicle's value, and it may be up to the discretion of the insurer whether your vehicle is considered a total loss. In Alabama, for instance, a car can be considered a total loss when the damage is greater than 75 percent of its value.
To determine your car's worth (the "actual cash value" in insurance terms) at the time of the accident, insurers typically use a number of factors to figure your car's actual cash value including its age, condition, mileage and resale value, plus the selling price of similar vehicles in your area.
When your insurance company makes a payment on the claim, it'll cut you a check for the car's actual cash value (possibly minus any deductible, depending on provisions of the policy). But if you're financing the car, the company will likely make the claim check payable to both you and your lender, which means you'll have to come to an agreement with your lender on how to release that money, the III says. Typically, the lender will be reimbursed first, with any remaining money then being paid to you.
It's possible that you may still owe your lender more for the car than the payment you just received. In that case, you'll be responsible for paying the remaining balance on the car loan.
However, if you have something known as gap coverage on your insurance policy, it can kick in at this point to pay that "gap" between what your car is worth and what you still owe.