Total Loss

An insurance company usually declares a car to be a total loss when the cost of repair is greater than the cost to replace. But a car can also be considered a total loss when it’s not safe to repair, or if it can’t be returned to its pre-accident condition. 

What is a total loss?

Getting into an accident is a hassle, at best. Repairs can take a long time, and sometimes cars just aren’t fixable. Sad but true. 

State laws heavily regulate the insurance industry. The rules are designed to protect consumers from all kinds of things, including fixing cars that are better off not being fixed — i.e., total losses. 

Car insurance companies are required to get your car back to pre-accident condition. In certain states, if the cost of repairs will exceed a certain percentage of the value of the car, the car can’t be fixed by the insurer and is considered “totaled.” That percentage varies according to state law; many states set this limit at 60% to 80% of the car’s value. 

Total losses can be declared at the scene of an accident, or after the cost of repairs has been evaluated by an adjuster or body shop.

If a car looks repairable on a preliminary basis, then it will be disassembled, and an adjuster or estimator will write a full estimate of the required repairs. If the damage is more extensive than initially thought, the car may be declared a total loss at this point. 

Cars that don’t look repairable are typically not disassembled. They are often towed directly to a salvage yard, where an adjuster comes out to inspect them. In some cases an adjuster or estimator can tell by simply looking at the car—and making some educated assumptions about the degree of damage based on what’s visible—that it’s a total loss. In other instances they might whip out a special total loss formula to do the calculation. Regardless, if your vehicle is declared a total loss, one or two things will happen. 

Either a preliminary estimate will be written, without disassembly, to account for all visible damage; or the car may be deemed a total loss without the estimate, if a reasonable person would agree that damages exceed the actual cash value of your car. This often happens in flood-damaged vehicles, complete burns, and vehicles involved in accidents involving multiple cars. 

Your claims adjuster will be in touch with you during the process to let you know what’s going on, but it may take time for all the boxes to be checked on your total loss claim.

Are there other instances of a total loss?

There are other instances where a vehicle may be declared a total loss, despite not reaching the total loss threshold of the car’s actual cash value (ACV). These include if a vehicle is stolen and not recovered for 30 days or more, or if there is unrepairable structural or flood damage.

What happens when a car is declared a total loss by an insurance company?

When your car is declared a total loss, your insurance company will conduct a car appraisal. The appraiser will inspect the vehicle for scratches, dings, dents, and body damage unrelated to the accident. They will also consider factors including age, interior condition, and the market value of the car. In addition, they will catalog all options, checking for things like a sunroof, leather seats, alloy wheels, roof racks, and so forth. 

After all that they will consider salvage value, and then the car’s actual cash value. Then, they will make you an offer, letting you know how much they will pay you out, minus your deductible. 

While this process is going on, your insurer might compensate you for a rental car to get around town in. Usually, your insurance company will allow you to keep your rental car for a few days to a week, while you figure out what your next steps are. You’ll also be given access to remove personal items and license plates from your totaled car, of course.

After reviewing the paperwork from your insurance claim, you may find that the value of the car is less than the amount you still owe on your loan. In that case, you’ll owe the balance of the loan. If you have gap insurance, that will kick in and possibly cover the difference. 

If you have a car loan, your insurance company will pay the lender first, before issuing your payout of any remaining funds from the settlement of the totaled vehicle. 

Can I retain my car if it was declared a total loss by the auto insurance company?

If you’d rather keep the totaled car, your insurance company may give you that option; however, if you still are making payments, your lienholder may not allow you to retain the salvage. 

The insurance company will determine the salvage value and give you the balance, minus your deductible. You can then move forward with repairing your car, as you see fit—maybe you’ve been studying mechanic videos on YouTube, or your cousin Tony knows his way under a hood. 

In some states, your insurance company won’t be able to make any payment on your salvaged vehicle until you make the repairs and apply for a branded title from the state. 

Keep in mind that not every state requires a salvage title after a vehicle is deemed a total loss, but you’ll likely have a salvage title issued, as most repaired total losses get a branded title. You may also be required to have the vehicle inspected by a state facility to determine if it is road-worthy. 

The car may be hard to insure, as insurance companies (including Lemonade) avoid insuring total losses. 

Isn’t Total Loss a hardcore band from Philadelphia?

Wow, you’re still reading? We’re not quite sure. But hey, we all know the insurance industry is full of great band names.

Total Loss
Please Note: These definitions don’t alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade. They are intended for educational purposes only - they’re not meant to be used in lieu of professional legal or financial advice. We’ll do our best to keep them updated, but they may not always reflect current industry developments. Feel free to use the terms with attribution (friends don’t let friends plagiarize!)
Insurance provided by Lemonade Insurance Company, 5 Crosby St. 3rd floor, New York, NY 10013 Lemonade Insurance Agency (LIA) is acting as the agent of Lemonade Insurance Company in selling this insurance policy, except that Lemonade Life Insurance Agency (LLIA) is acting as the agent of one or more unaffiliated companies that provide life insurance. Both LIA and LLIA receive compensation based on the premiums for the insurance policies each sells. Further information is available upon request.