If your car is totaled in an accident, you may expect the insurance payment to come to you as the car’s owner. Not necessarily. If you financed or leased your car, the insurance company will make sure the lender or leaseholder is paid first. You’ll receive whatever remains of the settlement — if anything.
Read on for a breakdown of how the insurance claims process works and who gets the insurance check when a car is totaled.
Key Points
• Insurance pays the lender first if a car is financed or leased, with the owner receiving any remaining settlement.
• A car is totaled if repair costs exceed its market value.
• Actual cash value is based on pre-crash condition, age, and local market prices.
• Gap insurance covers the difference if the settlement is less than the loan balance.
• Comprehensive and collision coverage are two types of coverage that will pay for a totaled car.
Getting an Insurance Check for a Totaled Car
Unless your totaled car was only a few months old, or you have new-car replacement coverage, the check you receive from the insurance company probably won’t be enough to replace it with a brand-new model.
If your car is financed or leased, as noted above, the insurance company will first pay off the lender or leaseholder. The car’s owner will receive a check only if any funds remain after the car is paid off.
If you’re not sure what would happen if your car was totaled, it might be time for a personal insurance planning session to review your coverage.
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What Happens If Your Car Is Totaled in an Accident?
After an accident, your insurance company will assign an adjuster to assess your car and estimate the cost of repairs. If the estimated cost of fixing the car is more than the car’s market value, the insurance company may declare it a “total loss.” The same thing may happen if the insurance company determines the car may not be safe to drive even if it were fixed.
How Your Car’s Value Is Determined
The insurance company will determine your car’s “actual cash value” based on its pre-crash condition and what similar models are selling for in your area. They’ll also factor in things like the car’s age, wear and tear (inside and out), mileage, and any optional equipment you’ve added. (You can learn more about the lingo discussed here in our guide to car insurance terms.)
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What If the Accident Wasn’t Your Fault?
If another insured driver is found at-fault for the accident that damaged your car, that person’s insurance should pay the claim — and your insurance deductible won’t come into play.
However, you should expect to pay your deductible amount if:
• You’re responsible for an accident.
• The fault is shared.
• No one is at-fault for the damage to your vehicle. For example, a tree branch or other debris hits your car in a storm.
• The driver who caused the accident is uninsured or underinsured, and your uninsured motorist coverage pays your claim.
Is a Car Totaled When the Airbags Deploy?
The cost of replacing activated airbags will be considered in the overall cost of repairing your damaged vehicle. However, a vehicle won’t necessarily be declared totaled because the airbags deployed.
Who Decides If Your Car Is Totaled?
People often use the word “totaled” as a general description for a car that’s been badly damaged. But only your insurance company can decide a car is totaled based on its value and the cost of repairs.
What Types of Coverage Will Pay for a Totaled Car?
Drivers are often more concerned about the cost of their monthly premiums than with how much car insurance they really need. But not all types of coverage will pay for a totaled car.
After an accident, you’ll need one of the following policies — which should be available from both traditional and online insurance companies — to be reimbursed for a totaled car.
Collision
Collision coverage pays for damage to your vehicle or property. That can include damage caused by crashing into another vehicle or running off the road and into a tree or fence. Even if you’re responsible for the accident, collision coverage will pay for the repairs, minus the deductible amount you’ve chosen.
Comprehensive
Comprehensive coverage pays for losses caused by something other than a collision, such as a weather event, hitting an animal, theft, or vandalism.
Property Damage Liability
Property damage liability coverage pays for damage to your vehicle (and other property) if you’re in an accident and the other driver is found to be at fault.
Uninsured / Underinsured Motorist
If you’re in an accident and the other driver is at fault but isn’t insured or doesn’t have sufficient auto insurance, uninsured motorist coverage pays for your repairs.
New-Car Replacement
With new-car replacement coverage, if your car is totaled, your insurer will pay to replace it with a brand-new car of the same make and model (minus your deductible).
Gap Coverage
If you owe more on your car loan or lease than what your insurance company says your damaged car is worth, you could end up having to make up the difference. Gap insurance can bridge the gap between your settlement and what you still owe.
Rental Reimbursement
Unless you have a backup vehicle to use until you replace your totaled car, you may have to rent a car. If your auto policy includes rental reimbursement coverage, your insurer may refund your out-of-pocket costs for the rental, but only for a limited time.
Do You Still Have to Make Loan Payments on a Totaled Car?
Even if your vehicle has been declared a total loss, your lender will likely expect you to keep making timely loan payments until the claim is settled. (If you don’t, that can hurt your credit.) So it’s a good idea to stay on top of any paperwork, and to check in with your insurance company and lender regularly to be sure the claims process is on track.
What If the Insurance Payment Isn’t Enough to Pay Off Your Loan?
Unless you have gap coverage, the settlement you receive may not be enough to pay off your loan or lease. Insurers are required to pay only what a totaled car was worth before it was damaged. So if your car’s actual cash value is less than what you owe the lender — or less than the payoff amount on your lease — you can end up having to make up the difference out of pocket.
If you research what your car was worth and think your settlement amount is too low, you can try to negotiate a higher amount. The insurer may ask you to provide documentation that proves the car was worth more than they’re offering, so be ready to round up photos of the car, maintenance receipts, and other paperwork that backs up your position.
You can also research comparable cars in your area. You may even want to hire a private appraiser to get a second opinion. If you think it will help, you might consider hiring an attorney.
Do Insurance Rates Increase After a Car Is Totaled?
Each insurance company has its own policy that determines whether a driver’s rates will increase after an accident. The decision may depend on who was at fault, your driving record, whether you’re a longtime customer or new driver, and other factors.
If you decide to shop for lower insurance rates to save money, keep in mind that you may have to answer questions about prior claims and accidents.
The Takeaway
When a car is so badly damaged that fixing it would cost more than it’s worth, the insurer may decide it’s totaled. That means instead of repairing it, the insurance company will pay the owner the car’s actual cash value, based on its condition just prior to the accident.
If you own your car outright, the payment will come to you. If the car is financed and you’re still making payments, the insurer will make sure the lender is paid first. After that, you’ll get what’s left of the settlement. Either way, you can end up short of what you’ll need to replace your damaged vehicle.
When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.
FAQ
If my car is totaled, will the insurance company send me a check?
If you own the car, the settlement payment will go directly to you. When the car is financed, the lender will be paid first, and you’ll receive what’s left of the settlement.
Can I keep the money from the insurance claim?
If you owned the car that was totaled, you probably can use the insurance settlement for anything you like. But if the car was financed, the insurance company will make sure you pay off what you owe.
Photo credit: iStock/rocketegg
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