In the unfortunate event of a car being declared totaled following an accident, the assumption that the insurance payment automatically goes to the car owner may not hold true. Especially if your car is financed or leased, the insurance company prioritizes settling the outstanding balance with the lender or leaseholder before disbursing any remaining funds to the owner, if there are any left.
Let’s delve into a comprehensive breakdown of the insurance claims process and clarify who ultimately receives the insurance check when a car is deemed totaled.
Getting an Insurance Check for a Totaled Car
Unless your recently totaled car is brand new or covered by new-car replacement insurance, the insurance checks you receive may not be sufficient to replace it with a brand-new model. For those with financing or leasing arrangements, the insurance company settles the outstanding amount with the lender or leaseholder first. Only after this is complete does the car owner stand to receive any remaining funds.
If you find yourself unsure about the potential outcomes in the event of a totaled car, it might be advisable to engage in a personal insurance planning session to thoroughly review your coverage.
What Happens if Your Car Is Totaled in an Accident?
After an accident, an insurance adjuster is assigned to assess the damage and estimate repair costs. If the projected repair expenses exceed the market value of the car or if the vehicle is deemed unsafe even after repairs, the insurance company may declare it a total loss.
How Your Car’s Value Is Determined
The insurance company calculates your car’s “actual cash value” based on its pre-crash condition, considering factors such as age, wear and tear, mileage, and any additional equipment. The decision to declare a car totaled rests on these evaluations and the cost of potential repairs.
What if the Accident Wasn’t Your Fault?
If another insured driver is found at fault for the accident, their insurance is expected to cover the claim, and your insurance deductible may not come into play. However, you might still be responsible for your deductible in scenarios where the fault is shared, no one is at fault for the damage (e.g., due to a storm), or the at-fault driver is uninsured or underinsured, triggering your uninsured motorist coverage.
Is a Car Totaled When the Airbags Deploy?
While the cost of replacing activated airbags is factored into the overall repair cost, a vehicle is not automatically declared totaled simply because the airbags deployed. The decision rests with the insurance company based on a comprehensive assessment.
Who Decides if Your Car Is Totaled?
While people commonly use the term “totaled” to describe severely damaged cars, only the insurance company has the authority to declare a car totaled, considering its value and the cost of repairs.
What Types of Coverage Will Pay for a Totaled Car?
Not all types of coverage will pay for a totaled car. Policies such as collision coverage for damage caused by crashes, comprehensive coverage for non-collision losses, property damage liability coverage, and uninsured/underinsured motorist coverage come into play after an accident.
Do You Still Have To Make Loan Payments on a Totaled Car?
Even if your car is declared a total loss, you’re likely required to continue making timely loan payments until the insurance claim is settled. Failure to do so can negatively impact your credit. Staying on top of paperwork and regularly checking in with your insurance company and lender is advisable to ensure the claims process proceeds smoothly.
What if the Insurance Payment Isn’t Enough To Pay Off Your Loan?
Without Gap coverage, the settlement may fall short of paying off your loan or lease entirely. Insurance companies are obligated to pay only what the totaled car was worth before the damage occurred. If the actual cash value is less than what you owe, you may need to cover the difference out of pocket. Negotiating a higher settlement amount is possible, but documentation proving your car’s higher value may be required.
Do Insurance Rates Increase After a Car Is Totaled?
Insurance rate increases following a totaled car incident depend on various factors, including fault, driving record, and insurer policies. Each insurance company has its own policy regarding rate adjustments post-accident.
The Takeaway
When a car is too damaged for cost-effective repairs, insurers may declare it totaled. In such cases, instead of covering repair expenses, the insurance company pays the owner the car’s actual cash value based on its condition just before the accident.
Whether you’re exploring new auto insurance or contemplating a switch, SoFi can assist in comparing your current policy to offerings from other top companies. With a few clicks, you can find the deductible, coverage type, and premium that aligns with your needs. Moreover, additional coverages like new-car replacement, Gap coverage, and rental reimbursement can provide a more comprehensive solution in the aftermath of a totaled car incident.