Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 19, 2021

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Insurance Q&A: “Why do insurance companies total cars?”

When it comes down to it, the insurance industry is a “for-profit” outfit.

Insurers, like almost every other business in the world, are out to make a buck. As a result, sometimes they “total a car” when it may very well be repairable.

When It’s Obvious – Totally Totaled

All of us remember Driver’s Education in high school. You probably saw a video, visited the local police station, or had a battered vehicle towed to your campus on a flatbed truck to demonstrate the disastrous consequences of drunk driving.

The car was totaled…no questions asked. The twisted hunk of metal was probably almost unrecognizable as a car. This is a clear example of a totaled car. The phrase “FUBAR” comes to mind.


There was no amount of money available that would make the car drivable again.

But you probably aren’t visiting this site for help if your car looked like that after your accident. Congratulations for surviving if that’s the case though.

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When It’s Not All That Obvious – Functionally Totaled

Ok. So your car still looked like a car after your accident. BUT THE INSURANCE COMPANY STILL “TOTALED” IT!!!!!! And it very likely didn’t turn out in your favor from a financial standpoint.

In this instance, your car was considered “functionally totaled.” Pay attention here.

This is where the insurance company’s bottom line comes into play…and where people often get furious.

Behind the Numbers

Insurance companies cover your car for its actual cash value in the event it is damaged. Not how much it’s worth to you personally.

This is an important part of understanding the logic behind “functionally totaling” a vehicle.

Once you consider a vehicle’s actual cash value at the time of loss, the reason your car was totaled becomes clearly evident.

If the cost to repair your vehicle EXCEEDS its actual cash value, it’s totaled…repairable or not.

The insurance company is not going to pay MORE money to fix your car than what their contractual liability to “total” it would be (contractual liability is the ACV).

This is true even if it leaves you without a vehicle or enough money to buy a new a ride.

Let’s look at an example:

Your car’s actual cash value is $3,500 at the time of loss (when the accident occurred).

If the cost to repair your car is $3,501, the insurer is going to “total” the car and give you $3,500 MINUS your auto insurance deductible.

The insurer is only on the hook for $2,500 if your deductible is $1,000 (expressed as $3,500 minus $1,000).

[How does insurance determine the value of a car?]

Let us guess; you’re furious because $2,500 is not enough money to replace your vehicle.

Recognizing the insurer will make a few bucks on the back-end by selling the “totaled” vehicle off as scrap metal and for parts may add insult to injury.

It might not sound like a lot of money, but they may sell thousands of cars each year, which really adds up.

Sorry for bringing that up…but you came to a site called The Truth About Insurance, so we had to tell you.

Still Peeved?

It may be time to switch insurance companies even if solely out of spite (kidding).

Get insurance quotes online or visit a local independent insurance agent to shop your rate.

A good agent may have advised you to not purchase full coverage auto insurance on a vehicle that has a good chance of being functionally totaled.

But keep in mind that if you opt for liability only coverage, your car won’t be covered for physical damage in the event of an insurance claim.

(photo: divinemisscopa)