Who gets the insurance check when a car is totaled?

A "totaled" car is one that an insurance company deems too damaged to repair, and therefore a total loss. When a car is totaled, the insurer will pay the owner an amount approximately equal to the vehicle's pre-accident value. However, the process can vary considerably depending on factors like who owns the wrecked car, if there is an outstanding loan on it, and what state it's registered in. This comprehensive guide will explain everything you need to know about what happens when your car is totaled.

What Does It Mean When a Car is Totaled?

When a car has been in an accident and sustained extensive damage, an insurance claims adjuster will inspect it to determine if it would be cost-effective to repair. If the repair estimate exceeds a certain percentage of the car's pre-accident value, usually around 75-80%, the insurer will deem it a total loss and declare the car totaled.

This is because the repairs would cost more than the vehicle is worth. It doesn't make financial sense for the insurance company to pay for expensive repairs on a badly damaged car. Instead, theydecide to call it a total loss, take possession of the wrecked car, and pay the owner a sum of money known as the actual cash value (ACV).

The ACV payment is intended to compensate the owner for their totaled vehicle so they can hopefully buy a replacement. But how much the insurer pays depends on who owns the car, who holds the insurance policy, state regulations, and other factors explored in this guide.

Key Takeaways About Totaled Vehicles:

• A "totaled" car has damage that exceeds its value to repair.
• The insurance company takes ownership and pays owner the ACV.
• ACV is the car's pre-accident fair market value.
• Who gets paid and how much depends on ownership, loans, and state laws.

What Happens if You Own the Car Outright

If you own the totaled car free and clear without any outstanding auto loan on it, the process is relatively simple. Here are the key steps:

• Insurer determines car is a total loss - After inspecting the damaged car and determining repairs exceed a certain percentage of its value, the insurance company declares it a total loss.
• Insurer calculates ACV - The insurer will determine the car's actual cash value (ACV) before the accident to arrive at a total loss settlement amount. This is based on factors like year, make, model, mileage, condition, and pre-accident fair market value.
• Insurer issues payment to you - Since you fully own the wrecked car with no lienholder, the insurer will issue a check with the ACV settlement amount payable directly to you.
• Use payment towards replacement car - You can use the insurance payout to shop for a replacement vehicle. The ACV should cover a comparable car, but you may need to contribute additional funds if buying something pricier.

When you own the totaled car free and clear, the simplest option is accepting the insurer's settlement check. But if you believe the offer is too low, you can negotiate for a higher amount or pursue third-party appraisals.

Tips if You Own the Totaled Car:

• Insurer pays ACV settlement directly to you.
• Use payment towards replacement vehicle.
• You can negotiate if settlement offer seems too low.

What Happens if There's an Outstanding Car Loan?

The process gets a bit more complicated if the totaled vehicle still has an outstanding car loan or other financial lien on the title. In these situations, the insurance company needs to include your auto lender in the claims process.

Here is what typically happens if you owe money on the wrecked car:

• Insurer values vehicle and issues joint check - The insurance company will still determine the ACV payout. But instead of issuing a check solely to you, it will be payable to both you and the lienholder.
• Lienholder requires you to "endorse" check - Because their name is on the check, your auto lender won't let you deposit or cash it right away. First, you must properly sign or "endorse" the check and get it to the lender.
• Lienholder deducts payoff amount - Next, the lender will deduct the outstanding loan balance for the totaled car from the ACV settlement amount. This pays off your auto loan.
• Lender sends you the remainder - After paying off your loan, the lender will then send you any leftover funds from the insurance settlement to use for your replacement vehicle.
• You may owe additional funds - If the settlement doesn't fully cover your remaining loan balance, you will need to come up with the difference (called "gap", see next section).

Be sure to communicate with your auto lender throughout the claims process if there is still an outstanding balance on your totaled car.

Key Tips for Total Losses With a Loan:

• Insurer's check made out to you AND the lender.
• You must properly endorse the check to the lender.
• Lender deducts loan balance then sends you remainder.
• Get gap insurance in case the settlement doesn't fully pay off your loan.

What Happens if You Leased the Totaled Car?

Leased vehicles are typically owned by the leasing company, with you as the registered user making payments over the lease term. So if your leased car gets totaled, there are additional steps:

• Insurer values totaled car and issues payment to leasing company - Because they retain ownership, the leasing company gets the ACV settlement check directly from the insurer.
• Leasing company calculates settlement - They will tally any amounts you still owe on the lease, deduct early termination fees, then factor in the insurance payout amount.
• You may get a small settlement - If the ACV settlement exceeds your remaining lease obligation, you may be entitled to the difference. But often, leased vehicles are total losses for the consumer.
• Shop for replacement car or new lease - Without the wrecked leased car, you'll have to find a new vehicle. The leasing company is under no obligation to get you into another lease.
• Consider gap insurance on future leases - To avoid out-of-pocket costs if a leased vehicle gets totaled, opt for gap coverage when leasing again.

Carefully review your lease contract and know that the leasing company ultimately owns a wrecked leased vehicle. This gives them control of the insurance payout.

Tips for Totaled Leased Vehicles:

• Insurance settlement goes directly to the leasing company.
• You may or may not get any leftover funds.
• Shop for a replacement vehicle on your own.
• Strongly consider gap coverage on future leases.

The Role of Gap Insurance When a Car is Totaled

Gap insurance plays an important role when you owe money on a vehicle that gets totaled. Also called "guaranteed asset protection", gap coverage helps fill the gap between what you owe on the car loan and what the insurer pays.

Here are key points about gap insurance and total losses:

• Covers difference between ACV and remaining loan - If the ACV settlement doesn't fully pay off your auto loan, gap insurance kicks in to cover the difference. This protects you from having to pay money out-of-pocket.
• Very beneficial if you still owe a lot - The first years of an auto loan typically have the greatest imbalance between remaining loan balance and car value. Gap insurance provides the most benefit during this period.
• Usually offered through auto lenders - Many car dealerships and lenders offer gap coverage when you take out a loan on a new vehicle. They build the policy cost into the monthly payments.
• Can be purchased separately - If not offered upfront, you may be able to buy a separate gap policy from your insurance company or third parties. This provides the same financial protection.
• Key coverage for leased vehicles - With leased cars, you have little control over the insurance settlement amount. Gap coverage is highly recommended to avoid lease-end surprises.

Gap insurance is an affordable way to protect yourself from potential shortfalls with total loss claims. Strongly consider it if you lease or have an outstanding auto loan.

Why Gap Coverage Matters:

• Covers the gap between loan balance and ACV payout.
• Most beneficial early in an auto loan term.
• Often offered through lenders and dealers at time of purchase.
• Can be purchased separately as standalone policy.
• Highly recommended for leased vehicles.

Other Important Factors in the Total Loss Process

Beyond just ownership status of the totaled car and any loans against it, there are other key factors that impact the insurance claims process:

Who Holds the Auto Insurance Policy

• Your own policy - You will have the most control over claim details and payout if the totaled car was covered under your own individual insurance policy.
• Someone else's policy - If you were driving another person's car that got wrecked, their insurer would handle the process. Communicate with the policyholder for updates.
• Shared policy - With shared family policies, all named insureds have an equal stake in the claim. Work closely together for the best outcome.

Your Chosen Coverages

• Collision coverage - This part of an auto policy pays toward damage to your own car. Confirm the totaled vehicle had collision coverage.
• Comprehensive coverage - If the car was totaled in a non-collision event like fire, theft or vandalism, comprehensive coverage applies. Verify this was in place.
• Actual cash value vs. replacement cost - Opting for replacement cost coverage can increase the payout amount you receive from the insurer.
• Uninsured motorist coverage - This provides payout if hit by an uninsured driver. But it may result in higher premiums down the road.

Who Was At Fault

• You were at fault - When the accident was your fault, it does not impact the ACV payout amount from your own insurer. But you may see increased rates at renewal time.
• Other driver was at fault - Your insurer may initially front the payment, then seek reimbursement from the at-fault party. This is not your concern.
• No fault state - In no-fault insurance states, each party's own insurer covers their damages regardless of fault. Total loss claims process operates the same.

Your policy choices, who was at fault, and other liability factors generally do not impact the total loss payout amount. But they are still relevant to how your claim gets processed.

Other Key Factors:

• Who holds the insurance policy on the totaled vehicle.
• Collision, comprehensive, and uninsured motorist coverage selections.
• Which driver the insurer determines to be at fault.
• Whether you live in a no-fault insurance state.

How State Laws Impact the Totaled Vehicle Process

Insurance regulations for totaled vehicles can vary considerably across different states. Here are some of the key state-level factors:

Total Loss Thresholds

• Varies by state - Some states use a 70% threshold for totaling cars, others go as high as 100%. This affects when insurers will declare a total loss.
• Percentage of car value - The threshold represents what percentage of the car's pre-accident value the repair bill exceeds. Higher thresholds make total losses less likely.
• Set by state governments - Individual insurers cannot arbitrarily set their own total loss thresholds. They must adhere to the percentage dictated by each state.

Mandatory Salvage Titles

• Title branding varies - When an insurer claims a totaled car, some states require the title be branded as "salvage". Others don't brand titles at all.
• Impacts resale value - A salvage title indicates the car sustained extensive damage. This makes the vehicle far less valuable if you choose to keep and repair it.
• Beware of title washing - Illicit sellers may try to "wash" the salvage brand from the title history of damaged cars. Only consider vehicles with clean titles.

Sales Tax on Replacement Vehicles

• Tax savings in some states - A few states waive sales taxes on the purchase of a replacement vehicle following a total loss claim. This can save you hundreds of dollars.
• Check with your state - Most states still require you to fully pay sales tax on a replacement vehicle, even after a total loss. There is no tax break.
• Keep tax savings in mind - If you live in a state that does waive tax for replacement cars, it can impact the ideal timing of when to buy the new vehicle.

Carefully research the total loss and salvage title laws in your particular state. They govern key details impacting the value of your settlement and can either cost you more money or provide savings when replacing your car.

State-Level Considerations:

• Total loss thresholds dictate when insurers must declare cars totaled.
• Some states require salvage branding of totaled car titles.
• A small number of states provide sales tax waivers on replacement vehicles.

FAQs

What if I still owe money on my totaled car?

If you have an outstanding loan on your totaled car, the insurance check will be issued in both your name and your lender's name. You must endorse the check and hand it over to the lender. They will deduct the remaining loan balance plus fees, then send you any leftover funds.

Can I keep the money if I own the totaled car?

Yes, if you own the totaled car outright with no loan, the insurance check will be paid directly to you. You can choose to keep the money or put it towards a replacement vehicle.

What if I was leasing the totaled car?

For a leased car, the insurance payment will go straight to the leasing company since they technically own the car throughout the lease term.

How does gap insurance help if my car is totaled?

Gap insurance helps cover the gap between what your vehicle was worth and what you still owed on your loan, in case the insurance settlement doesn't fully pay off your remaining loan balance. This protects you from any shortfall.

Does the at-fault driver's insurance cover my totaled car?

If another driver was at fault in the accident that totaled your car, their liability insurance will pay for the value of your totaled vehicle. This payment would go to either you or your lender, depending on who owns the car.

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