Being involved in a car accident is the stuff of nightmares. Not only do accidents cause injury and death, but they can also put car owners in severe financial straits. Ask anyone who has filed an insurance claim. That moment the agent says your car has been totaled is the moment your whole understanding of auto insurance changes.
A totaled car will not be repaired unless you are willing to fund the entire cost yourself. And even at that, doing so would require your insurance company to relinquish the car to you. They ultimately decide a totaled car’s fate.
What Being Totaled Means
The term ‘totaled’ is just a shortened version of ‘deemed a total loss’ by the insurance company. The question is this: how does an insurance adjuster determine if a car is a total loss? Fortunately, adjusters do not have to guess. The insurance industry defines a totaled car as one that would cost more to repair than replace.
Imagine being in an accident driving a car with a market value of $15,000. Impact with another car is serious enough to bend the frame and cause significant damage to the engine. Even before bodywork and paint, you are looking at a repair bill of close to $12,000. Throw in the bodywork and paint and you are over $20,000.
It is cheaper for the insurance company to pay you the $15,000 and be done with it. They declare your car a total loss and write you a check. That’s the end of it. Rest assured that an insurance company will always choose this option if it is cheaper.
What Adjusters Look At
Determiningwhether a car is totaled is not an exact science. Adjusters start by looking at two main things:
- Previous Condition – An insurance adjuster will attempt to determine the value of the car before the accident. This involves looking at things like the car’s age, mileage, and service history. A good adjuster will leave no stone unturned in this regard.
- Market Value – An adjuster will also attempt to determine the market value of similar cars. They will check the Kelley Blue Book value, for starters. They will also look at used-car websites, online classifieds, and any other resources suggesting what the car might be worth.
Adjusters have a difficult job in that there is really no way to know the value of a totaled car with certainty. They can only throw all their data into the mix and come up with a reasonable estimate. If that estimate suggests a car is worth less than the cost of repairs, it will be totaled.
What It Means for the Consumer
The moment an insurance company says a car has been total, its owner is faced with a series of choices. The first choice is whether to accept the insurance company’s assessment. Once the owner signs on the dotted line and accepts an insurance check, that’s it. There is no turning back; there is no changing one’s mind.
Assuming the owner accepts that their car has been totaled, they essentially sell the car to the insurance company for its estimated value. The insurance company can do with the car as it pleases. It might scrap the car or sell it to a salvage company. As for the consumer, they now have the task of finding a new car.
If the consumer doesn’t accept the insurance company’s assessment, they refuse to sign the settlement and take the check. Instead, they hire an attorney to represent them in small claims court. The attorney’s job is to make sure the owner’s rights are protected. In the end, the outcome will be determined by either settlement or a court decision.
Buying a Replacement Car
One way or another, it is likely that the owner will be left having to buy a replacement car. Their options will be influenced by the amount of money received from the insurance company. According to Southern California’s CarFastCash, owners do not always get enough insurance money to cover the cost of a new car. Some even end up in debt when all is said and done.
How is that possible? Unfortunately, new cars lose quite a bit of value the minute they are driven off the lot. If an insurance company adjuster values a totaled car at less than what the owner still owes on the loan, the owner is essentially out of luck on two counts. Not only do they no longer have a car, but they still has outstanding debt on that car.
So what is the consumer to do? Here are their options:
1. By an Inexpensive Used-Car
The first option is to purchase an inexpensive used car with whatever money the insurance company paid out. It is not the ideal option, but it’s often times the only way to get back on the road quickly. In the meantime, the consumer would have to work out a way to repay the outstanding balance on their car loan.
2. Buy Something New
The next option is to go buy something new. If the consumer doesn’t have an outstanding balance on an old car loan, the hardest part about buying new could be coming up with a down payment. But if there is an outstanding balance, it may be a matter of convincing the bank to roll that balance into a new loan. It is not impossible, but it is difficult.
3. Lease a New Car
The last option is to lease a new car. Leases do not always make sense from a financial standpoint, but this might be one case in which leasing makes all the sense in the world. A lease can act as a bridge between the consumer’s old car and the new car they will eventually buy when they have the money.
That moment the insurance company says your car is totaled is the moment your life changes. Fortunately, it is rarely the end of the world. There are ways to overcome the loss of one’s car.
