Auto insurance can give you compensation to repair damage your car sustains in an accident, but insurance doesn't cover the cost of repairs in all cases. After an accident, your insurance company assesses the damage and it may declare the car a total loss if the damage is too extensive. A totaled car is a vehicle that would cost the insurance company more to repair than it would to replace entirely.
Total Loss Definition
A car is considered a total loss if the cost to repair it to its pre-accident condition is greater than the car's actual cash value. For example, if a car is worth $5,000 before an accident and it would cost $6,000 to restore the car back to its original condition, it is a total loss. Your insurance company may also add the salvage value of the car to the cost of repairs when figuring whether it is a total loss. For instance, if your car was worth $10,000 before an accident and repairs would cost $9,000, but it has a salvage value of $2,000, it may be declared a total loss even though the cost of repairing it is lower than its actual cash value.
Compensation for a Totaled Car
When a car is totaled, the insurance company compensates you so you can replace it. The amount of cash you get when you make a claim for a total loss is equal to the car's pre-accident value minus your insurance deductible. The deductible is an upfront cost you have to pay out of your own pocket any time you make an auto insurance claim.
Keeping a Total Loss
It may be possible to keep a car even if your insurance company declares that it is a total loss. If you choose to keep a totaled vehicle, the insurance company gives you compensation equal to the car's value, minus your deductible and the salvage value. After that, it is up to you to either sell the car for parts or get repairs to make it safe to drive. If damage is mainly cosmetic, it might be possible to restore a totaled car to roadworthy condition at a modest cost. Note that state laws may not permit you to keep a totaled vehicle.
Old cars tend to have low cash value, which makes them more likely to be declared a total loss after an accident. For instance, if you're driving an car with 200,000 miles that's only worth $1,000, even a minor fender bender could cause enough damage to result in the insurance company declaring it a total loss.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.