How is My Car Considered a Total Loss?

Insurance Q&A: “How is my car considered a total loss?”

We’ve all heard the phrase, “My car got totaled.”  It typically comes up when someone is explaining extreme damage to their car as the result of an equally horrific accident.

We get it it, it was bad, but what does that mean from an insurance company perspective?  And what can we expect in terms of compensation?

Insurance companies use a simple formula when determining if your vehicle is a “total loss,” or “totaled.”


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If the damage to your vehicle costs more to repair than it would cost to write you a check to cover the value, it’s “totaled.”

The good news is that you’ll be compensated from the insurance company, instead of being stuck with a badly damaged car that though repaired, will lose resale value and may end up a lemon.

Here’s how the process works:

First, the insurance company will determine if your policy includes physical damage coverage assuming the accident was your fault.

If you are not at fault, the other driver will need to be insured with high enough liability limits to pay for the value of your car.

If they do not carry adequate liability limits, you better hope you have either uninsured motorist and/or underinsured motorist coverage.

If the at fault party, either you or the other driver, does not have adequate insurance, the victim is out of luck; the only hope of recouping losses resulting from the damages would be to sue the other driver.  Good luck getting money from a driver who wasn’t responsible enough to carry insurance in the first place!

Of course, in theory, it’s very easy to complete the process once coverage is verified for the at fault driver.

Let’s look at an example of a total loss (assuming insurance coverage is in force at the time of the accident):

Value of vehicle: $4,000
Cost to repair: $5,000

A vehicle worth $4,000 collides with a tree while swerving to avoid a deer.  The insurance company gets damage estimates of $5,000 to repair the car.

The insurer would be crazy not to replace your car with an existing car versus paying more than it’s worth in repair bills, so they will consider it a “total loss.”

The insurer will also hold onto your old car once they replace it and probably sell it for scrap to recover some of the money they paid to buy you a new one.

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