After a car accident, you may hope your insurer will restore your vehicle to its precrash condition so you can continue driving it. That doesn't always happen. Sometimes it's declared a total loss, or "totaled."
The term "totaled" means the cost to repair your vehicle is more than the car is worth. Some states have laws that require insurers to total a vehicle when the damage exceeds a certain percentage of its value.
Having your car totaled can be an unpleasant experience, and the process for getting reimbursed can be overwhelming. But you don't have to go into it blindly. Read on to understand what to expect after your car is totaled in an accident. We'll share some important tips to help you get the right value for your claim.
Filing a total loss claim
Once your auto insurer determines your car or truck is totaled, it doesn't get repaired and returned to you. Instead, you receive a payment for the actual cash value, or ACV, of the car, minus your applicable deductible. Then your insurer takes possession of the car. Some people refer to the process as a "forced sale" because your insurance company is essentially buying your wrecked car instead of fixing it.
To start the process, you'll need these documents:
- Vehicle bill of sale or sales receipt.
- Odometer statement.
- Certificate of title.
- Power of attorney.
The bill of sale along with the odometer statement will help your insurer determine the payout for your claim. You'll also need the certificate of title so you can turn over possession of the car to your insurance company.
It's optional, but with a power of attorney in place, your insurer can handle the title transfer independently. That means if there are any hiccups in the process, you don't have to worry about playing the middleman between the DMV and your insurance carrier.
Putting a price tag on your totaled vehicle
So how much is your car worth after being totaled? It depends. Typically, your insurer will determine the ACV by considering your vehicle's condition before the crash and market value for similar used vehicles in your geographic area. Keep in mind that ACV differs from book value, which may not reflect current market prices.
It may be helpful to speak with your insurer about their specific process for determining ACV. Also ensure they're comparing cars of the same model, with similar options and mileage. This will help you get the most accurate valuation for your vehicle.
If you recently had major work done to your vehicle, let your claims adjuster know, and be prepared to show the receipts. By "major work," we mean something like replacing the transmission or getting a new paint job. Your adjuster may agree that there's value in the work performed, but you might not believe you're getting a fair valuation. Talk with your adjuster and explain why you think your vehicle's value should be higher. If your difference of opinion is large and you're unable to persuade the insurer to your point of view, check if your policy has an appraisal clause.
When you invoke an appraisal clause, you and your insurer will hire an appraiser. They'll render individual judgments on the ACV and try to reach an agreement. If they can't, they'll choose another appraiser to act as an umpire.
What about GAP coverage?
Once the value of your vehicle is established, you'll receive your settlement payment either by check or a direct deposit to your bank account.
If you still owe money on the car, a check can be made out jointly to you and your lender, although you may need to authorize your insurer to pay your lender. If the insurance payment is less than what you owe, you'll generally have to pay your lender the difference out of your own pocket.
That may not be the case, however, if your loan has something called guaranteed asset protection or GAP coverage, which can free you from having to pay the difference between your outstanding debt and your insurance settlement.
GAP coverage is usually an optional feature offered at an extra cost when the loan is originated. Depending on the terms of the GAP plan, you're still responsible for paying your deductible.
Your policy may also carry auto replacement assistance, which could allow you to replace your vehicle with a newer one or at least one that's similar.
Also, keep in mind that the accident itself won't impact your credit score, but unpaid loans will. Therefore, it's critical you make sure you've paid off your auto loan.
Handing over your totaled vehicle
After a total loss, the normal practice is for the insurer to take possession of your vehicle. To transfer ownership, you'll need to sign your title over to the insurance company and then physically deliver the title to them. If you can't find your title, apply to your state motor vehicle department for a replacement.
If you still owe money on your car, your lender will have the title certificate, and you must authorize them to turn it over to your insurer.
You'll also need to authorize the shop holding your vehicle to release it to the insurer. Before you do, be sure to remove all your personal possessions. State law may also require you to remove the license plates.
Can I keep my totaled car?
Not all states will allow you to keep the wrecked vehicle, depending on the circumstances of the accident. But when permitted, some owners prefer to keep the car rather than handing it over to their insurance provider.
This usually happens when the vehicle was totaled due to cosmetic damage, if the car has sentimental value, or the owner has experience working on cars or reselling parts. In these cases, the expected salvage reduces your settlement amount.
If you choose to keep it, the car will also have a branded or salvaged title. Because it's been in a major accident or sustained major damage, the value likely diminishes. That means you may not be able to insure it even if you repair it, and the salvaged title could make selling it difficult.
If the vehicle is drivable, for example, if it has hail damage, and you choose not to repair it, physical damage coverage may no longer be available either.
What to do with your car insurance after a total loss
After you complete the settlement and transfer of ownership, you should immediately remove the vehicle from your insurance policy — if the insurer doesn't do so automatically.
If it was the only vehicle on that policy, you should still keep the policy active so you're covered while you're driving other vehicles before buying your next one. If you don't replace the vehicle, consider securing a "named non-owners policy."
Depending on the circumstances of your accident and claim, your insurance premium may rise after your car is totaled. If you haven't had an at-fault accident for some time — usually several years — you may qualify for accident forgiveness.
A possible tax break
If your vehicle is totaled, you may qualify for a federal income tax deduction for the unreimbursed portion of your loss. This is a casualty loss deduction and isn't available if willful negligence or act on your part caused the accident. With any discussion about tax savings, deductions or planning, it's best to speak with your tax professional about your unique situation.
Depending on your income and other deductions, it may take quite a large unreimbursed loss to actually achieve a benefit on your tax return:
- Unless your car was totaled in a federally declared disaster, the casualty loss deduction is only available if you itemize your deductions, rather than using the standard deduction.
- To calculate the deductible amount, reduce the unreimbursed loss by $100. Then, you can only take a deduction to the extent of your total casualty losses for the year not to exceed 10% of your adjusted gross income.
The IRS determines the loss amount differently from how insurers calculate it. For details on the casualty loss deduction, talk to a tax professional or consult IRS Publication 547 Opens in a New Window. See note 1
Finding your next car
Your insurance may cover the cost of a rental car, but only for a limited time. After you begin the claims process, you may want to consider buying your next vehicle.
If you plan to finance that purchase, get a preapproval from your lender to save time and put yourself in a stronger negotiating position.
Insuring your vehicle
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