If you’ve been in a major car crash and your vehicle has sustained major damage, it may be declared a total loss. Experiencing a car crash and seeing your car written off as a total loss is a difficult experience – and that's before you call your car insurance provider to work out what happens next.
How insurance companies decide if the car is a total loss
Each state has a total loss threshold. If your state's threshold is 70%, that means that if the damage equals 70% or more of the car’s value, then the insurer will consider the car a total loss. In California, for example, there is no specific threshold percentage and instead uses the TLF, or "total loss formula," which is the cost of repairs plus scrap value and how this compares with the pre-crash value of the car. Check out our list of total loss thresholds by state.
What you can do with your totaled car
1. Keep the car and repair it
In many situations it makes sense to repair your car if it’s still safe to drive (perhaps cosmetic damage, not mechanical damage, is what made it a total loss), if the settlement money isn't enough to buy a replacement car, or if you drive an older car that holds sentimental value to you. In this case, the insurance company deducts the salvage value (the money it expects to get for your wrecked car) plus the deductible if you were at fault, and you get the remaining money.
You’ll get a salvage title for the car (as opposed to a clean title). It's the law that any car that has been determined a total loss by an insurance company have a salvage title, and it is fraud to claim your car has a clean title when it actually doesn’t if you decide to sell it later.
It may not be easy to get car insurance on a salvage title car. Some companies won't insure them at all, and others will only offer liability insurance, not collision or comprehensive insurance.
2. Keep the car but don't repair it
You may want to simply keep the car if it is still safe to drive, and accept whatever cosmetic damage has deemed it a total loss. This is common with scratches, paint damage or severe dents, such as from hail damage. But if the airbags didn’t deploy and the drivetrain, including engine and transmission still work, it may still be in good enough shape to meet your needs. This also may be a smart option if the payout from the insurance company isn’t enough to cover a replacement car.
3. Sell the individual parts
When a car insurance company buys totaled cars, it sells its parts or materials. You may want to do this yourself if you feel you are knowledgeable or skilled enough to individually remove and price the many parts of your car. You could receive more money selling parts on your own than what the insurance company is offering you. Also, this may be an option if you work on cars and want to use the parts on another car.
4. Take the money
Frequently, people opt to take the money paid out by the car insurance company; they are essentially buying your damaged car from you. Your insurer or the at-fault driver’s insurer will tell you the car's actual cash value and give you a check with that amount. If you were at fault in the crash, the insurer will pay that amount, minus your deductible.
Remember that you can always negotiate the payout on your totaled car. When negotiating, be clear on how the insurer has determined the value of your car: They find five cars that are "comparable" to yours and determine their value. They leave out the most expensive car and least expensive car, and take the average price of the middle three cars. That's what they pay you.
The problem with this process is that the insurer may not have accurate representation among those five cars. These cars might be lower end models, or cars with minimal accessories. Ask your insurer how they arrived at the offer price, and insist that they consider the exact model, trim, and mileage of your car before the crash. Be prepared to prove the value of your car, which requires receipts for anything installed on your car (receipts for maintenance and repairs won’t help you, because they theoretically only get your car to a drivable condition and don't raise the car's value).
5. Donate the car
You can donate your car to charity if you want to get a tax deduction on the depreciated value of the car. Donation services will often tow the car for free and sell it for parts, and let you choose the charity that receives the money from your totaled car. Some popular ones include:
You’ll need to fill out a form to gift the vehicle to the charity along with a title transfer. These processes vary by state. If your car is worth more than $5,000 an independent appraisal will be needed. Donating your car will likely bring in less money than if you sold it for parts yourself, but if you simply want to dispose of your car and move on, donating it is a good option.
This article is adapted with approval from carinsurance.com: http://www.carinsurance.com/Articles/5-things-to-do-with-a-totaled-car.aspx