Totaled Car: What It Means & How It Works

What an auto insurance company means by a “totaled” car may be different from what you or I think of when we hear that term. While some drivers may perceive a totaled car as one that’s completely beyond repair, that isn’t always the case.

Often, when auto insurance companies decide that a vehicle is totaled, it’s because the cost of repairs is greater than the pre-damage value of the vehicle. While this practice makes sense from the insurance company’s perspective, it can often leave drivers perplexed.

At what point does repairing a car become too expensive — even with full coverage auto insurance? And how do auto insurance companies determine the value of your car? What if your car is totaled and you’re not at fault?

With this guide, we’ll answer these questions and address other common concerns drivers have about totaled vehicles, including when auto insurance covers the cost of temporary transportation like rental cars or bus fares.

After you gain a greater understanding of how auto insurance companies use the term “totaled,” enter your ZIP code into our free online tool to compare quotes and find affordable coverage that’s right for you.

When is a car considered totaled?

Auto insurance companies may have different definitions of what they perceive as a “totaled” vehicle. But most agree that a totaled automobile is one that’s less expensive to replace than to repair. For example, Allstate considers a vehicle totaled when the “cost to repair the car exceeds the value of the car.” Likewise, Progressive uses the term “total loss” to describe a vehicle that costs less for an insurance company to replace rather than to repair.

In addition to insurance companies, some states have specific definitions for totaled automobiles. In the state of New York, for instance, a vehicle is considered “totaled” when the cost of repairs is either equal to or greater than 75% of the car’s cash value.

What type of insurance covers a totaled car?

All major auto insurance companies provide coverage that extends to totaled vehicles. But what specific type of insurance covers your automobile will depend on the nature of the event that damaged your car.

• Liability insurance – This applies if you’re involved in a collision where the other driver is found to be at fault. If liability insurance applies, the other driver’s auto insurance (not your own) will cover repairs to, or replacement of, your vehicle.
• Collision insurance – This applies if you’re involved in a collision and you’re either found at fault or no one is at fault. In this case, your collision insurance will cover repairs or replacement costs.
• Comprehensive insurance – This applies if your car is damaged by an event other than a collision (like an act of vandalism or a hailstorm). In this case, your comprehensive insurance will cover repairs or replacement costs.

What will your auto insurance do if your car is totaled?

After an accident, an insurance adjuster will estimate the cost of repairing your vehicle before determining whether or not your car is totaled. If your auto insurance company resolves that your damaged vehicle is a total loss, they’ll pay you an amount equal to the actual cash value of your car. (We’ll review how your car’s value is determined in the section below.)

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But who gets the insurance check when a car is totaled depends on whether or not a driver owes any loans on the vehicle. In the event that you’re financing your car and it’s declared a total loss, you may end up owing money on a loan for a car you can’t drive. For example, let’s say an insurance adjuster determines that the actual value of your car is $4,000, but you still owe a dealership $5,000 for the vehicle. In this case, your insurance company would pay the $4,000 to the dealership, and you’d be left with a $1,000 loan on your totaled car. Try using a totaled car value calculator online to get information specific to your situation.

To avoid situations like this, consider purchasing GAP insurance. This is a type of coverage that pays out the difference between what you owe on a vehicle and what it’s actually worth in case it’s totaled. (GAP insurance is also significantly less expensive than comprehensive or collision insurance; therefore, it won’t result in more than a 5% or 6% increase to your total insurance payments.)

How do insurance companies determine the value of your car?

After an accident, an adjuster from your insurance company will appraise the value of your car (before it was damaged) and then typically contact a third party to conduct a similar appraisal. By having a third-party appraiser evaluate your car alongside a claims adjuster from your insurance company, the final estimate that your insurance company provides you for repair or replacement costs is less likely to be biased.

According to the Insurance Information Institute, a claims adjuster’s estimate is merely an approximation. Insurance companies expect you to speak with one or more mechanics or automotive professionals to obtain a vehicle repairs quote to compare with their own estimate.

Remember that you always have the option of negotiating with your insurance company. To get an idea of your car’s actual value for negotiation purposes, you can utilize a resource like Kelley Blue Book or the National Association of Automobile Dealers NADA guides.

Will auto insurance pay for a replacement car?

In some cases, your auto insurance will pay for a replacement vehicle if your car is totaled. More often than not, your auto insurance will offer you a cash payment equal to the value of your totaled automobile.

Looking for a replacement car is more of a backup option in case you and your insurance company can’t agree on the cash value of your total loss vehicle. For example, if your brand new car is totaled and it’s not your fault, your auto insurance company may offer you a cash payout, which you may decline in favor of a replacement automobile of similar value.

When looking for a replacement car, an insurance company will usually begin the search within 25 miles of where you usually park your car. From there, the search will expand in increments of 25 miles until two or more cars that are comparable to the totaled vehicle are located. In some cases, your insurance company may need your permission to expand the search for a similar automobile.

Will auto insurance pay for temporary transportation if your car is totaled?

The answer to this question depends entirely on your policy. If you have rental car reimbursement coverage or another type of temporary transportation coverage, in addition to collision and/or comprehensive coverage, then your auto insurance company will help cover the cost of temporary transportation (rideshares, rental cars, bus fare) if your car needs to be repaired or replaced after an accident.

Rental car reimbursement coverage can cost as little as $2 per month to add to your existing full coverage auto insurance, so be sure to ask your insurance agent about including it on your policy.

What to Remember About a Totaled Car

• A “totaled” car is one that costs an auto insurance company more to repair than to replace. If your car is considered a total loss, expect a cash payout from your insurance company.
• If you owe money on your car, and it’s totaled, you may receive a payment equal to your car’s actual value that’s lower than what you owe. In other words, you could end up owing money on a car you can’t drive. It’s best to purchase GAP insurance to avoid this situation.
• You can always negotiate with your insurance company. If you believe that their estimate of your car is too low, you can obtain a second opinion from a mechanic. If you would prefer a replacement vehicle as opposed to a cash payout, you can request one.

To help you begin your search for the best auto insurance companies that cover totaled cars, try our free online quote tool to find affordable coverage options in your area.