A total loss insurance claim can be costly. If a car is declared a total loss, it means the repair cost exceeds the actual cash value of the car.
What happens if your car is a total loss? What does it mean for your insurance claim? What happens to your old vehicle? Today, we’re explaining everything you need to know about total loss insurance claims.
What is a Total Loss Insurance Claim?
A total loss insurance claim is an insurance claim where the cost of repairing your vehicle exceeds the value of the vehicle.
Let’s say you have a 5-year old economy vehicle worth around $7,000. You drive through an intersection and somebody hits the side of your vehicle. Your vehicle has significant damage. An auto body repair shop tells you it will cost $10,000 to repair your vehicle. Your insurance company declares the claim a total loss: the cost of repairing your vehicle ($10,000) is more than the value of the vehicle ($7,000), which means it doesn’t make financial sense to repair the vehicle. If you can replace your vehicle for $7,000, then why would you pay $10,000 to repair that vehicle?
Property damage liability coverage is required in every state, although collision and comprehensive coverage are optional.
Insurance companies use actual cash value (ACV) for total loss insurance claims. The actual cash value of your vehicle is the amount your vehicle is worth today. It’s the price you paid for your vehicle minus any depreciation.
States Have Different “Total Loss Threshold” Limits
Up above, we provided the simplified explanation of total loss car insurance claims: if the cost of repairing your vehicle exceeds its actual cash value, then the incident is declared a total loss.
In reality, however, total loss insurance claims are not so simple. Most states have something called a total loss threshold (TLT) or total loss formula (TLF). In these states, your vehicle may be declared a total loss even if the cost of repairs is less than the actual cash value of your vehicle.
In other words, the actual definition for “total loss” varies between states:
Total Loss Threshold (THT): Some states use a THT formula. In THT states, damage only needs to exceed a certain percentage of a car’s value to be determined a total loss.
Total Loss Formula (TLF): Other states use a TLF system, where a car is declared a total loss if the cost of repair plus the salvage value of the vehicle exceeds the car’s actual cash value (ACV).
How Does a Total Loss Insurance Claim Work in Your State?
We explained total loss threshold (THT) and total loss formula (TLF) above. Below, we’ve listed states that use a TLF system. We’ve also listed states that use a THT system, in which case the percentage is listed.
Indiana, for example, has a 70% TLT. If you drive a $10,000 car and get into an accident that requires more than $7,000 of repairs, then your car will be declared a total loss. The repairs do not exceed the actual cash value of the vehicle, but they do exceed the total loss threshold limit of the state of Indiana.
Colorado and Texas, meanwhile, are the only two states with 100% total loss threshold limits. In these two states, your car is only declared a total loss if the repair cost exceeds the actual cash value of the vehicle. If your $10,000 car requires $9,000 of damage, for example, then your car will not be declared a total loss in Texas and Colorado (but it would be declared a total loss in virtually every other state).
Here’s how each state breaks down:
- Alabama: 75% Total Loss Threshold (TLT)
- Alaska: Total Loss Formula (TLF)
- Arizona: TLF
- Arkansas: 70% TLT
- California: TLF
- Colorado: 100% TLT
- Connecticut: TLF
- Delaware: TLF
- Florida: 80% TLT
- Georgia: TLF
- Hawaii: TLF
- Idaho: TLF
- Illinois: TLF
- Indiana: 70% TLT
- Iowa: 50% TLT
- Kansas: 75% TLT
- Kentucky: 75% TLT
- Louisiana: 75% TLT
- Maine: TLF
- Maryland: 75% THT
- Massachusetts: TLF
- Michigan: 75% TLT
- Minnesota: 70% TLT
- Mississippi: 70% TLT
- Missouri: 80% TLT
- Montana: TLF
- Nebraska: 75% TLT
- Nevada: 65% TLT
- New Hampshire: 75% TLT
- New Jersey: TLF
- New Mexico: TLF
- New York: 75% TLT
- North Carolina: 75% TLT
- North Dakota: 75% TLT
- Ohio: TLF
- Oklahoma: 60% TLT
- Oregon: 80% TLT
- Pennsylvania: TLF
- Rhode Island: TLF
- South Carolina: 75% TLT
- South Dakota: TLF
- Tennessee: 75% TLT
- Texas: 100% TLT
- Utah: TLF
- Vermont: TLF
- Virginia: 75% TLT
- Washington: TLF
- West Virginia: 75% TLT
- Wisconsin: 70% TLT
- Wyoming: 75% TLT
What Happens If My Car Is Declared a Total Loss?
If your car is declared a total loss, then your insurance claim will proceed in a more unique way than a traditional insurance claim. Here’s what typically happens:
- Your insurance company will remove your license plates and any personal items from the vehicle
- You will leave your vehicle’s key with your insurance company’s claims adjuster
- You will send in any additional keys for the vehicle
- You fill out any associated paperwork
- You or your insurance company will contact the leasing or financing company (if you lease or finance your car)
The faster you go through these steps, the sooner you will receive reimbursement.
After your insurance company declares your claim to be a total loss, the insurance company will take possession of your car. At this point, the insurance company notifies the DMV that the car has been totaled. In certain states, the car will be declared “salvage” and will be assigned a salvage title. At this point, any buyers that specialize in salvaging vehicles can purchase the car from the insurance company.
What happens if you want to keep the totaled vehicle? Some vehicles have sentimental value. Or, you may want to keep the car for its salvage value yourself. In this situation, your insurance company can allow you to retain ownership of the vehicle. You should receive less cash from your total loss insurance claim (the insurance company might subtract the salvage value of the vehicle from your payout). However, you will retain ownership of the vehicle.
Some states actually prevent drivers from keeping total loss vehicles, while other states require you to obtain a certificate stating that the car is salvage. Your insurance company’s claims adjuster will be familiar with the laws in your state.
What Happens If I Disagree with a Total Loss Insurance Claim?
What happens if you disagree with the idea that your car is a total loss? If you disagree with the claim, then you may negotiate with the claims adjuster over the incident.
You may be required to submit documentation disputing your claim: your documentation might show that the car is worth more than what the insurance company believes, for example.
If the insurance company claims your vehicle was only worth $5,000, but it was actually worth more, then you might submit recent photographs of the vehicle to prove that it was in impeccable condition or only had 30,000 miles on it, for example.
Alternatively, you may want to prove the actual cash value of your vehicle by running it through a qualified appraiser. An independent appraiser may come up with a different interpretation of your car’s value.
How Much Money Will I Get for a Total Loss Insurance Claim?
If your vehicle is declared a total loss, then your insurer will pay you the fair market value of your car based on the condition it was in during the seconds before the accident.
If your car exceeds the limits of your policy, then your insurance company will reimburse you to the limits of your policy but no more than that. If your car is worth $40,000 and you only had $30,000 of collision coverage, for example, then your insurance company will only pay you $30,000.
What Comes Next After a Total Loss Insurance Claim?
So your car has been declared a total loss. Your insurance company is sending you a payment and taking ownership of your vehicle (under a salvage title). What happens next?
In this situation, you have a bunch of cash (from your insurance payout) and no vehicle (because the insurance company took ownership of the vehicle).
Ideally, your insurance company gave you enough money to buy a similar vehicle from the open market. If you drove a 2014 Toyota Camry, for example, then your insurance payout should be sufficient to approximately buy you a 2014 Toyota Camry from a seller.
Alternatively, you can put the money towards a new vehicle. If a new Toyota Camry costs $25,000, for example, and your insurance payout for your old vehicle was $15,000, then you might pay $10,000 out of pocket to buy a brand new Toyota Camry.
A total loss insurance claim can be costly. Making total loss claims even costlier is the fact that in most states, insurers can declare your accident a total loss even when repair costs do not technically exceed the value of the vehicle.
By following the guide above, however, you can navigate the total loss insurance claim process.