When you conjure up an image of a car that's been "totaled," you might imagine a car wrapped around a telephone pole and vehicles rendered nearly unrecognizable by multicar pileups. But the insurance definition of totaled is much broader -- sometimes, vehicles involved in minor fender-benders will be declared totaled for insurance purposes.
According to Edmunds.com, an auto insurance company will declare a car a total loss if the cost of repairing it would be more than just giving you enough money to cover its cash value and then selling it to a salvage yard.
Figuring the value of your car
Your insurance company will assess your vehicle's actual cash value, using sources like Kelley Blue Book or its own database. This value then will be adjusted based on your car's condition before the accident, according to GEICO and Progressive. If your vehicle was dented, warped, rusty and leaking before the crash, its value will be lower. Other factors contributing to your vehicle's value include mileage, customizations and enhancements.
Once your auto insurance company has figured out what your car is worth, it will subtract other costs, like the estimated repair costs and the salvage value of the vehicle. If the actual cash value exceeds your repair and salvage costs, the vehicle won't be considered totaled. But if it does, then you'll have a total loss on your hands.
My car is totaled -- now what?
If you own the car outright, the insurance company may write you a check for the actual cash value minus your deductible and other fees, according to Progressive. If you lease the vehicle, the insurer will pay that same amount to the leaseholder, according to GEICO. If you finance, the financing company gets the money first; if that amount is more that what you owe, you'll get the balance.
If you lease or finance your vehicle, there's a chance your insurer could decide that your car is worth less than the amount you owe to the leasing or financing company. For instance, the auto insurance company might write a check $21,000. But you might still owe $24,000 on your lease. You'll have to cover that $3,000 difference out of your pocket unless you have GAP insurance.
You can keep your totaled car, provided you re-title it as a salvaged vehicle and adhere to state reporting requirements. You'll still get its cash value from your insurer -- minus the amount your insurance company could have salvaged it for, according to GEICO.
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