What do auto insurance companies do with totaled cars?

It can be confusing to determine when a vehicle involved in an accident is considered totaled. The rules around totaling a vehicle are complicated. It is important for you to understand how total loss claims work, and what is most likely to happen to your totaled car.

What happens to a totaled car? 

The process differs from state to state, but typically, the insurance company will take ownership of the totaled car and label it as “salvage.”

The insurance company will pay the insured the pre-loss ACV of the car. It will then send over the ownership certificate, the license plates, and the required fees to the Department of Motor Vehicles (DMV). The DMV will issue a salvage certificate for the car and sell it to a salvage vendor who will resell it based on state-specific regulations. 

When is a car considered totaled? 

Cars are considered to be a total loss by insurance companies when the cost of repair is higher than the actual cash value (ACV) of the car. Practically speaking, it isn’t always viable to repair a car, even when that cost is lower than the ACV of the car. For example, a vehicle worth $5000 needing repairs worth $4500 will be considered totaled by the insurer. 

The criteria for deciding total loss differs from company to company and are governed by state laws. In most cases, insurance companies will consider a vehicle totaled when the repairs are likely to cost 75% or more of ACV. However, in some states, a car will be totaled if the damage exceeds the Total Loss Threshold (TLT) for the car.

The TLT is how high the damage ratio must be before the car is eligible for a salvage title. The TLT ranges between 50%-100% depending on your state.

Do you have to accept an insurance company’s totaled car settlement?

Once your car is declared a total loss, the insurance company will offer a settlement based on the fair pre-accident value of the vehicle. You are not expected to accept the first settlement offer. You can drive up the total loss settlement if you negotiate. You can calculate the value of your totaled car and accurately reflect its value by presenting the following points: 

• If some features of your car weren’t added to the appraisal estimate you can ask your adjustor to add those features to drive up the car value
• Ask the insurance company to narrow down the inventory of cars from the comparable list 
• Request that your insurer expand the search area if there are no comparable cars in your area
• Adjusters might have a little room to increase the valuation of your car, simply ask them for a better price
• Show them your listings and local ads

Doing your homework and presenting these arguments can often help you get a better settlement. 

Your Options When Your Car Is Totaled

Your car is totaled, so what now? To start, you will have to finalize the claims process. First, a settlement offer will be sent to you. Once you accept the offer, you will be asked to sign a power of attorney and transfer the title of your car to the insurance company. 

While signing the power of attorney and handing the totaled car to the insurance company is a common practice, it isn’t a requirement. 

Read more: How to Get an Attorney Auto Insurance Discount 

You can opt to keep your vehicle. You may decide to do so for sentimental purposes or because you can get the damage repaired on your own. Note that in the case you decide to keep your car, you will not receive the full settlement payment. Rather, your offer will be decreased by the car’s salvage value. 

If you’re thinking about keeping a salvage-certified car, research well before you come to a decision. Get several repair estimates from qualified mechanics and find an insurer who will insure a totaled car. Note that few are willing to do so, so make sure your vehicle qualifies for auto insurance before coming to a decision.

The Bottom Line on What Happens to Totaled Cars

Totaled cars will be certified as salvage and will be sold off by the insurance company to a salvage vendor working with the DMV. However, you usually have the option to keep your salvaged car. While you might want to do so for sentimental reasons, it’s best to make the decision after getting the repair estimates and finding an insurance company that is ready to insure it.