What is total loss car insurance?

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Cars are fantastic tools, but they’re also expensive to replace. Suppose you are in a car accident and it’s not your fault. In that case, you can expect the at-fault driver’s insurance company to cover your damages. But what about when you’re the at-fault driver? Sure, your basic liability coverage will take care of the other driver and their vehicle, but what about yours? Total loss car insurance is one type of insurance policy that can help in this situation if the damage is severe enough.

What is total loss?

Total loss in car insurance is when a vehicle is damaged beyond reasonable repair. If the car has total loss coverage, the insurance will make a payout for the totaled vehicle. There are two primary methods for determining when a car is a total loss.

The first method is known as the total loss threshold and is determined by state. The total loss threshold is a percentage of the vehicle’s market value. If damages meet or exceed this threshold, the car may be declared a total loss instead of being repaired. Not all states have a specified total loss threshold. Instead, some use the total loss formula.

The total loss formula (TLF) is the second method for determining when a car is a total loss. It equals the fair market value of a vehicle minus its salvage value. If the cost of repairs exceeds the TLF outcome, the insurance company can declare it a total loss.

Total loss threshold by state

State Total loss threshold
Alabama 75%
Alaska TLF
Arizona TLF
Arkansas 70%
California TLF
Colorado 100%
Connecticut TLF
Delaware TLF
Florida 80%
Georgia TLF
Hawaii TLF
Idaho TLF
Illinois TLF
Indiana 70%
Iowa 70%
Kansas 75%
Kentucky 75%
Louisiana 75%
Maine TLF
Maryland 75%
Massachusetts TLF
Michigan 75%
Minnesota 70%
Mississippi TLF
Missouri 80%
Montana TLF
Nebraska 75%
Nevada 65%
New Hampshire 75%
New Jersey TLF
New Mexico TLF
New York 75%
North Carolina 75%
North Dakota 75%
Ohio TLF
Oklahoma 60%
Oregon 80%
Pennsylvania TLF
Rhode Island TLF
South Carolina 75%
South Dakota TLF
Tennessee 75%
Texas 100%
Utah TLF
Vermont TLF
Virginia 75%
Washington TLF
West Virginia 75%
Wisconsin 70%
Wyoming 75%

What happens if your car has been declared a total loss?

If you receive a vehicle total loss declaration from your insurance company and you don’t want to dispute the decision, then there are a few things to know about the total loss process. If you are currently leasing the car, you will also want to contact the leasing company and inform them that it has been totaled. The steps below are what you should do if your car is declared a total loss.

  • Remove license plates. Remove both the front and back license plate and take them with you. Leaving your plates where someone might take them can lead to complications down the road. The safest approach is to maintain possession of the license plates until they are no longer on your record with the DMV.
  • Remove personal belongings. While removing your license plates, look inside of the vehicle as well. Check the dash, the trunk, and anywhere you might have left possessions. Once you turn your keys in, you’re done with the vehicle and may lose anything that you left in it.
  • Give the keys to your claims adjuster. Once you’ve finished getting your plates and possessions from the car, you’ll need to hand over your keys to your claims adjuster. When you do, they’ll have some final pieces of paperwork for you to complete.
  • Complete the required paperwork. Fill out and sign any paperwork that is left. Your claims adjuster should inform you of what documents are still needed when you pass over your keys. Once you complete the last of your paperwork and return it, there’s nothing left but to say goodbye to your old car.

How to dispute a total loss

Suppose your car is declared a total loss and you disagree with that assessment. In that case, it is possible to dispute the decision. When you dispute these decisions, you are attesting that the insurance company undervalued your vehicle and declared it totaled prematurely.

  1. Assemble documents and vehicle information. To show your car’s value, you’ll want to gather any documents you have that reflect this. These might include the original receipt of sale, as well as notations on the various features and add-ons that your car has.
  2. Find market information on your vehicle. Using a resource like Kelley Blue Book, find out the average current market value of your vehicle make and model. This tool is excellent for providing ballpark figures. Yet, it may not be precise enough on its own to dispute the total loss declaration.
  3. Inform the company of your stance and submit your evidence. Contact your claims adjuster and inform them that you think they undervalued your car and that you are disputing the total loss declaration. Provide them with your documentation and notes, including the information you gathered on market value.
  4. Request an appraisal. If the insurance company remains unconvinced at this point, you may request an in-person appraisal of your vehicle. Many of these determinations are made based on paperwork and known variables (like make and model) without an in-person appraisal.
  5. Consider legal action. If, after everything, you and the insurance company still cannot agree on whether your car was appropriately valued, you may consider filing a complaint with your state’s department of insurance. This process can be lengthy and complicated but should be pursued if you believe the insurance company is acting in bad faith.

How insurance companies value your vehicle

The insurance company assigns a claims adjustor to your case. This adjustor assesses your vehicle for damages and considers other variables that depreciate value. These usually include the vehicle’s age, mileage, general wear and tear and any previous damages. The company will then take this information and use it in conjunction with market value data to determine how much your car is worth. The number they arrive at is known as the actual cost value (ACV).

How much does a total loss pay out?

Total loss car insurance settlement payouts depend on the value of the car. When your insurance company determines whether to declare the car totaled, they are concerned with its actual cost value. This is what the car is worth after considering any damage or depreciation factors. Once all of that has been taken into account, the insurance company will pay you the actual cost value.

Frequently asked questions

What is the best car insurance company?

The best company for you depends on your situation. The easiest way to find the best one for you is to shop around between a few different companies. By obtaining quotes from multiple companies, you can see who will offer you the best coverage for the best rates. To get started, read our guide on the Best Car Insurance Companies for 2020.

When should I dispute a total loss declaration?

Insurance companies try to make their declarations correctly, but they do make mistakes. If you believe that your car has incorrectly declared totaled, you should dispute it. You may not win the dispute, but it will ensure they take a closer look at your case.

What policies have total loss car insurance coverage?

There are three main types of car insurance that provide total loss coverage. These types are property damage liability (basic liability), comprehensive coverage and collision coverage. With property damage liability, a total loss is only covered if another driver is at fault.

Do I need total loss car insurance?

Total loss coverage could be a good idea if you have no alternatives to using a personal vehicle and if you could not replace your car if it were totaled. For many people, the loss of their vehicle can mean a loss of income. In those situations, total loss insurance can make a lot of sense.