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why insurance companies “total” cars

A car is more than a mode of transportation — it's an extension of the driver's taste and personality. It's partly this, and partly the major inconvenience, that makes a totaled car (aka a “total loss”) tough to take.

We'll explain how insurance companies determine a car is a total loss after an accident, what happens when your car's been totaled, and how your car insurance can help you get back on the road.

What “totaled” means

When a car insurance company like Esurance uses the term "totaled," we often mean that an appraiser has mathematically determined that the vehicle is damaged beyond a certain percentage of its actual cash value (ACV). The ACV is a car's market value, which is equivalent to its purchase price minus depreciation. A car can also be totaled if it was exposed to salt water, has extensive water damage, or has a hole in its firewall. Each condition makes the car more dangerous to drive.

A totaled car isn't necessarily the one that looks the worst after a collision. There are times when a car involved in a minor accident may be considered a total loss.

car accident

For example, say John has a 2000 Honda Civic with an ACV of $5,000 and a car insurance policy that will cover the ACV in the event of a total loss. John gets in a 3-car accident when his vehicle's struck from behind, forcing his Civic to strike the car in front. After the accident, a claims appraiser will determine how much it'll cost to replace the damaged rear panels, the damaged front end, and any damaged parts. The repair costs can add up quickly, and as soon as the estimate exceeds 75 percent of the ACV, his insurer will likely consider the car a total loss.

In many states, John's insurer is required to let his state DMV know, making it illegal for John to continue driving the totaled Civic unless it's repaired and re-titled as a salvage vehicle. The process for obtaining a salvage title varies by state.

If your car is deemed a total loss

If the repair costs are greater than the car's ACV, you may have any of the following options:

dollars
  • Full settlement: allow the insurer to take the damaged vehicle
  • Partial settlement: salvage the vehicle or sell the totaled car
  • Partial settlement: donate the car to a charity (an IRS write-off)

If you choose to refuse the settlement, carefully review the details of the estimate to get a good understanding of the potential out-of-pocket costs. If you decide to fix the totaled vehicle, keep in mind that in some states, your insurer won't pay for any repairs and may deny future coverage on the car, even after repairs. A car that insurers declare totaled, also known as a salvage car, is considered more dangerous to drive and, as a result, riskier to insure.

Some insurance companies won't release a totaled car back to its owner even if a settlement is refused. Check your insurer's post-totaled return policy early in the process.

The bottom line on a totaled car

It's never easy saying goodbye to an old friend. But if your car is significantly damaged due to an accident, you should consider all avenues available. In many cases, it may make good financial sense for you and your car insurance company to declare the car a total loss.

If your vehicle's declared a total loss, speak with your insurance company to make sure you understand all your options. If you're an Esurance customer, we're here to help. Call 1-800-ESURANCE (1-800-378-7262) anytime, day or night.

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