When and why do insurance companies decide to total cars?

If you have a car accident, your car insurance company will usually pay for repairs to your vehicle. If the collision was the policyholder’s fault, this may be the policyholder’s insurance company. Or it could be the insurance company of the other driver responsible for the accident.

However, in some situations, insurance companies don’t Pay for repairs. Instead of covering the cost of car repairs, they declare the car a total loss. This is called a car totaling and can potentially have major financial consequences for the car owner.

When will my insurance company pay my car total?

Typically, insurance companies declare a car a total loss if the cost of repairs is equal to or more than the car’s value.

For example, let’s say your car, worth about $15,000, sustains very serious damage and will cost $20,000 to repair. In this situation, it makes absolutely no sense for the insurance company to spend $20,000 to repair a car that is only worth $15,000. Instead of doing so, the insurance company notifies the vehicle owner that the vehicle will be totaled instead.

What does total scrapping of a car mean to the owner?

When a car is scrapped, the insurance company takes over the damaged vehicle and sends compensation to the owner. Car owners will generally receive a payment equal to the market value of their vehicle at the time it was totaled.

If you receive a payment from the insurance company under your collision coverage, this payment will be made minus any deductible you owe. If the at-fault driver’s insurance company pays, they will pay the full market value of the car.

Unfortunately, the fact that car owners only get paid what their car is worth can sometimes cause problems for car owners. It is because:

• The car may not be worth what the driver has to pay for it.
• Drivers may not be able to purchase a similar car for the amount received.

Many people end up owing more than their vehicle is worth. Especially since people are taking out longer car loans and making lower down payments. If the car is worth $12,000 and you owe $15,000, you’ll need to find $3,000 from your bank account to pay off the loan on a car you no longer own. Drivers can avoid having to pay this out of pocket if they purchase a special type of insurance called gap insurance, but they must purchase it before a collision occurs.

Drivers may not be able to afford a similar car

There are several reasons why this may happen: Drivers who own an older model vehicle that has been perfectly maintained and in good condition may not be able to find a comparable vehicle for as good a car insurance premium and may have to pay more for a newer model.

And your new car loses a lot of value after being kicked off the lot. Therefore, someone who owns a relatively new car may think that the fair market value of that car is much less than it would cost to purchase a similar new model. That’s why some insurance companies offer a new car replacement to ensure that policyholders who buy a new car can purchase a similar model without incurring a huge loss.

Unfortunately, drivers cannot choose whether their insurance company will cover the entire vehicle. They can appeal the decision and argue that the car is worth more if they have grounds to do so. However, your insurance company will not pay more to repair your car than it is worth.

Drivers should prepare for this possibility and consider purchasing gap insurance as well as new vehicle replacement insurance. This will help minimize the potential for major losses if your vehicle is declared a total loss.

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