A totaled car is one of the most stressful occurrences that most of us will ever face. Because so much of modern life depends on reliable transportation, a totaled car produces a sinking feeling that you have probably experienced at other times of crisis. If you are in this unenviable situation, you definitely need some information in order to understand where you are and what you need to do.
What Is The Definition Of “Totaled”
Insurance agents often don’t do a great job of explaining things to their clients. As such, you might not know the definition of this term. A car is totaled when it is deemed to be unfixable. More often, a car will be declared as a “total loss” if the costs of the needed repairs are greater than the estimated worth of the vehicle.
To put it in a simpler way: Your insurance company will inspect your vehicle and get an estimate for the repair costs. If that estimate is higher than the estimated value of the car itself, it’s not worth the trouble to fix.
You should now understand the basic idea. Now, let’s get into the specifics. Every state has different laws on this matter, and each state sets a threshold. In order to be declared as a “total loss,” the repair costs must equal or exceed a certain percentage of the car’s estimated worth.
For example, in the state of Maryland, the damages must equal at least 75% of the car’s total worth. So, let’s say your car is worth $35,000. In order for your car to be declared a “total loss,” the law dictates that the damages must be at least $26,250. Needless to say, this is a very generous threshold, but not all states are so lenient.
How Does TLF Calculation Work?
As of this writing, there are about 22 states that use a different formula to calculate their total-loss threshold. This formula is called TLF (total-loss formula). In many ways, this method is a little more exact than others, which explains its growing popularity. By using this formula, states can force insurance companies to stay within a more specific framework. Without this system, it is easy for insurance companies to pull a fast one by manipulating the estimates.
For quick reference, the formula is as follows:
Repair costs+scrap value is greater than ACV of the vehicle = the vehicle is totaled
Repair costs+scrap value is less than ACV of the vehicle = the vehicle is not totaled
TLF calculation works like this: You start by getting an estimate of the repair costs. Then, you get an estimate of the vehicle’s scrap value. Just for future reference, you should know that vehicle scrap values tend to be quite low, averaging from $100-$500 at most junkyards. Anyway, you add the repair costs to the scrap value. Then, you compare those costs to the actual cash value (ACV). If the actual cash value is less than the repair costs and scrap value combined, that vehicle can legally be declared as a total loss.
What Happens If My Car Is Totaled?
Now that you understand how this sort of thing is calculated, it is time to look at more practical concerns. You’re probably wondering what happens when your car is totaled, so here’s what you can expect: Your insurance company will pay for the car, minus your deductible.
Of course, this kind of thing is likely to make your monthly rates go up. However, some of that will depend on whether or not the accident is declared to be your fault. If you are not at fault (or if you live in a no-fault state), you will likely be reimbursed for the entire value of your vehicle.
If you have a cheap insurance plan or one that constitutes the bare minimum required by law, you are likely to be in a bad spot. Lower-tier insurance plans usually won’t have comprehensive collision coverage, which is what you need if you expect a totaled car to be replaced.
What’s A Deductible?
Your deductible is just the amount that you have to pay without help from the insurance company. They are basically saying, “you pay this much, and we’ll pay for the rest.” Naturally, the better insurance plans tend to have lower deductibles, but it is harder to qualify for these plans, and they are more expensive.
How Is ACV Determined?
At this point, we should tell you what ACV (actual cash value) means in this context. ACV simply refers to the current market value of the vehicle. The ACV of your vehicle will normally be a lot lower than the price of a new model.
For instance, the ACV of a 2015 Dodge Stratus will not be equal to the amount that you paid for it in 2015, nor will it be equal to the value of a 2019 or 2020 Stratus. This figure takes wear and tear into account, which means that older or well-worn cars might be totaled without a whole lot of actual damage.
What If I Still Owe Money On My Car?
If you have totaled a car that was not yet paid for, you have a much bigger problem. Although your insurance company may cover the cost of the damages, or even pay to replace the vehicle, they will not take care of your loan obligations. Even after the vehicle has been crushed at the scrapyard, the debt will still exist.
In this situation, you may want to think about getting something called “gap insurance.” As the name tells us, gap insurance is meant to cover the gap between what your employer will pay and what you owe for the vehicle itself. Depending on the situation, your insurance company might require you to purchase gap insurance.
How Do Insurance Companies Pay Out?
Instead of buying you a new vehicle, most insurance companies will cut you a check. This check doesn’t have to be used for a new vehicle, so you could technically use it for whatever you want. However, this only applies if your car is paid off entirely. If you owe any money on the car, you will have certain obligations with this money. Those obligations vary by state, so you will need to consult with your insurance company and/or your attorney for more information.
A totaled car is one of those events that brings everything in your life to a screeching halt. As such, we know that those of you who are dealing with this problem will be a little stressed. We hope that we have alleviated some of that stress by giving you a better idea of what you can expect from this process. If so, please fill out the contact form located on the right, to receive more of our work.