Whether from a collision claim resulting from an accident, or from a comprehensive claim caused by a “non-accident” event, sometimes the cost to repair your car can exceed the current market value of the vehicle. Whenever this happens, your claims adjuster may tell you that your car has been “totaled” – meaning it is considered a “total” loss and is not eligible to have the cost of repairs covered.
What do you do when this happens? What are your options?
Well, first of all, you want to make sure that a total loss is justified. This decision is based on three factors:
- The cost to repair the vehicle
- The current market value of the vehicle
- The current salvage value of the vehicle
Here’s the basic formula that the claims adjuster uses to determine if a total loss has occurred. If the cost to repair the vehicle exceeds the market value minus the salvage value, then the claim is normally considered to be a total loss. Here’s an example of how this might work:
Auto market value $6,500
Auto salvage value -$2,500
Maximum available for repairs $4,000
In this case, if the estimated cost of repairs exceeds $4,000, then the vehicle may be declared a total loss. Your deductible will be subtracted from this amount to arrive at the amount of your total loss payout.
Auto market value $6,500
Insurance deductible -$500
Total loss payout $6,000
In our example, the amount paid out to the policy holder would be approximately $6,000 (the market value minus the deductible). If this happened, then you would be required to turn in your vehicle so the insurance company could attempt to recover the salvage value.
What happens if you want to keep your vehicle? Suppose the damage is extensive, but the car is still drivable? You are allowed to keep it, but you must pay the salvage value to the insurance company and obtain a salvage title from the state.
Total loss payout $6,000
Auto salvage value -$2,500
Adjusted payout $3,500
In the case above, if you kept your car, you would receive a check for $3,500 (because the salvage value is deducted from the total loss payout amount).
So…if your car is totaled and then you “buy” it back, what kind of insurance coverage is available at this point? Many people mistakenly assume that they can only carry liability coverage since the car has been “totaled” and no longer has any value. Is this correct?
No, you can still maintain “full coverage” in the event that a collision or comprehensive claim occurs in the future. Although the previous damage that caused your vehicle to be considered a “total loss” would not be eligible for repairs, you could experience additional damage that would be eligible for repair. For example, suppose you had a crack in your windshield, this could still be submitted for glass repair or replacement. If your car is “totaled” again, then the current market value would obviously be lower due to the previous damage and the fact that it is operating under a salvage title.
Recently, we have had many policy holders go through this experience due to the major hail storm that came through our area. In most cases, a car damaged by hail is still drivable (it just doesn’t look very pretty!). Many clients are choosing to keep their vehicles even though they are totaled. If this happened to you and you have any questions, call our office at (937) 848-6840.
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WHAT IF…my car is “totaled”?