What Is a Total Loss in Car Insurance?

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Written by J.J. Starr Edited by Nick Versaw

Updated March 26, 2024

When an insurer declares a car a total loss, it means your car’s damage is so extensive that repairing it doesn’t make sense. In other words, it’s “totaled.” Your vehicle can be totaled following a car accident, a severe weather event (i.e., hurricane), theft, or vandalism.

Fortunately, your insurer will reimburse you for the car’s value — so long as you have the right coverage. But the claims process can still be frustrating even when you have the right coverage in place. That’s why it’s crucial to have the best auto insurance before an incidents happens.

This guide clarifies the process and shows you how to get the most out of your total loss claim.

How Auto Insurers Determine If Your Vehicle Is Totaled

Car insurance companies consider a car totaled when the damage to the vehicle exceeds a specific amount. In other words, if your repairs cost more than what the car is worth, the insurer won’t repair it. Your state uses one of two methods to figure this out:

• Total Loss Threshold (TLT)
• Total Loss Formula (TLF)

Your insurer will assign an insurance adjuster to your claim to determine the cost of the damage to your vehicle and whether that damage exceeds the total loss amount.

Total Loss Threshold

States using the TLT method consider a vehicle a total loss if the cost of the damage exceeds a percentage of its actual cash value (ACV) — its fair market value if you tried to sell the car before it was damaged.

Rules in your state determine that percentage — which can range from 60% to 100%. So, if your state’s total loss threshold is 65%, your car’s repair cost can’t go beyond 65% of your car’s ACV. If it does, your insurer can declare the car totaled.

Total Loss Formula

Popular in many states, the TLF determines the total loss amount by subtracting your vehicle’s salvage value (its value after damage) from its ACV. Here’s the formula:

Actual Cash Value − Salvage Value = Total Loss Amount

If the damage to the vehicle exceeds the total loss amount, the car is totaled. For example, let’s say a car’s fair market value is $10,000, the salvage value is $2,500, and repairs cost $8,000:

$10,000 − $2,500 = $7,500

The repair cost exceeds the threshold determined by the formula, so the insurer would consider the vehicle totaled.

State Laws for Total Losses

Each state has its own set of rules to determine when a car is totaled. The table below shows the threshold percentage for each state — unless the state uses the TLF method.

What to Do If Your Car Is Totaled

Navigating the aftermath of a totaled vehicle can be stressful. We’ve outlined the five stages you’ll go through from car accident to payout.

1. File an insurance claim

Follow your insurer’s instructions when filing a claim. You’ll likely need to provide details about the accident and the damage. You may also need to submit a police report.

2. Assess the damage

Your insurer will send a claims adjuster to examine the damage to your vehicle. Then, the company will decide whether the car is totaled or repairable. If repair costs exceed a certain threshold, your insurance company will declare it totaled.

You’ll receive a settlement offer based on the vehicle’s pre-accident value minus the deductible and salvage value.

3. Review the settlement offer

When reviewing your offer, be sure to consult a source like Kelley Blue Book to determine the fair market value of your vehicle. That way, you can ensure your insurer gives you a good settlement.

If you believe your settlement is low, you can dispute it or negotiate with your insurer.

4. Pay off your outstanding loan balance or lease

If you financed your car, you’ll need to pay the remaining loan balance before you do anything else with the settlement money. If you leased the car, you’ll pay the remaining lease term (and other potential fees and costs).

5. Use your remaining payout to shop for a new or used vehicle

If you have any leftover funds, you can put them toward your next vehicle. You can choose to replace your current vehicle with a used model or a new one.

You can also consider keeping your totaled vehicle, fixing it, and continuing to drive it. But remember that the car’s safety may be compromised (especially with frame damage), and it will only qualify for a rebuilt title, which can affect your registration and insurance. It can also be a long and difficult journey to get a car back on the road after a total loss, and its resale value will be considerably lower.

​​How Much Insurance Companies Pay for a Total Loss

Once your insurer declares the car totaled, it will pay out the ACV (aka fair market value) minus your deductible.

ACV − Deductible = Payout Amount

If you have a remaining balance on your car loan or a remaining lease term, your insurer will usually send a payment directly to the lender or leasing company. The insurer may send your entire payout to the lender, which will then send you the leftover amount, if any. Alternatively, you may receive the payout and pay the remaining balance yourself.

If the other driver is at fault, their insurance company settles the claim and issues the payout through their property damage liability coverage. In this case, there’s no deductible to worry about, and you should receive the entire ACV of your car. If the driver was uninsured, your uninsured motorist coverage kicks in from your insurer — so long as you purchased it. One in seven people drives without insurance, so adding this coverage to your policy is crucial.

You can also dispute the settlement if you’re unhappy with the payout amount.

Disputing a total loss settlement

You can negotiate your settlement if you disagree with the insurer’s conclusion. Follow these steps if you wish to dispute.

1. Don’t cash your settlement check — doing so essentially accepts the offer.
2. Notify the insurer that you disagree with the settlement amount and ask about its dispute process.
3. Research your car’s fair market value based on the local selling price for the same make, model, mileage, and optional features. You can also use a resource like the National Association of Automobile Dealers (NADA) Guide.
4. Review state laws that affect settlement amounts.
5. Submit a counteroffer with supporting documentation. Consider working with an independent appraiser and an attorney, but those costs can exceed the potential payout.
6. Settle with the insurer.

​​Auto Insurance for Totaled Cars

Several types of car insurance coverage may kick in when your car is totaled. In the table below, we’ve outlined each coverage option, what types of damage it covers, and how much it pays out during a claim.

Keep in mind that you need to purchase the coverage before the accident — and these are all optional in many states (though some states may require you to have them).

Loss Car FAQs

After your car is totaled, you may have decisions to make. Below are the answers to the most common questions asked after a total loss.

Can you keep your totaled vehicle?

Possibly. You can keep a totaled vehicle, but it depends on your insurer and state regulations. It may be worth it to keep your totaled vehicle to salvage parts or if it’s an older vehicle that’s still functional after being totaled for minor damage.

On the other hand, it may not be worth it if there are potential safety concerns, higher repair costs, challenges with getting insurance for the car, or potential issues with passing state inspections.

Does a totaled vehicle affect your credit?

No, a totaled vehicle typically doesn’t directly affect your credit. But, if you have an outstanding loan or owe money on the car, making late payments or defaulting on those payments will negatively affect your credit score.

Will your auto insurance go up if your car is declared totaled?

Probably. Your auto insurance rates may increase after your car is totaled, especially if the accident was your fault. Once you’ve been in an accident, insurers rate you as a higher risk, leading to higher premiums.

Do you still have to pay your loan or lease on a totaled car?

Yes. You’re still responsible for paying off your loan or lease even if your car is totaled. If your car depreciates faster than you’ve paid off your loan balance, the insurance settlements might not cover the entire outstanding amount unless you have gap insurance.

What is a salvage title car?

Salvage title cars have significant damage and have usually been declared totaled by an insurance company. Although you can rebuild them and put them back on the road, they have a lower resale value and potential safety risks.

Methodology

Data scientists at Compare.com analyzed more than 50 million real-time auto insurance rates from more than 75 partner insurance providers in order to compile the quotes and statistics seen in this article. Compare.com’s auto insurance data includes coverage analysis and details on drivers’ vehicles, driving records, insurance histories, and demographic information.

All the quotes listed in this article have been gathered from a combination of real Compare.com quotes and external insurance rate data gathered in collaboration with Quadrant Information Services. Compare.com uses these observations to provide drivers with insight into how auto insurance companies determine their premiums.

Sources

1. Insurance Research Council, “14 Percent of U.S. Drivers Were Uninsured in 2022, IRC Estimates,” Accessed March 15, 2024.
2. Insurance Information Institute, “Determining your car’s value and cost of repair,” Accessed March 15, 2024.

J.J. Starr Insurance Writer

J.J. Starr is an insurance writer for Compare.com who specializes in auto insurance and personal finance. She has a passion for helping people save money by explaining complex topics like car insurance in a way that is simple and easy to understand. Prior to writing for Compare.com, J.J was a registered banker and life insurance consultant. She holds a master's degree in writing from New York University and a bachelor's degree from Stephens College.