How does car insurance work for total loss of a vehicle?

How car insurance works for total loss of a vehicle is by paying you out for the amount your vehicle is worth after it is totaled in an accident. Auto insurance companies determine the total cash value of your car by looking at Kelly Blue Book valuations and how much the make and model of your vehicle is selling for at dealerships and private sales.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent

UPDATED: Oct 29, 2020

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Total loss. The 2 words almost every driver never wants to hear but even in car accidents without injury a total loss can happen.

Whether its engine damage or structural damage exceeding the book value of the car, it is not unusual for a car insurance company to write-off a vehicle after a car accident. When this happens you will want to know how much money you can expect to get a replacement vehicle.

The answer to this however depends on the type of insurance you have and your policy details.

How much will a car insurance company pay if my vehicle is a total loss?

If you only have state minimum car insurance requirements and the accident was your fault then most likely the answer is nothing (except in states with no-fault car insurance laws). State laws only require drivers to have liability insurance which provides no coverage for damages to your vehicle in accidents where it is determined you were at-fault. However should you have comprehensive and collision coverage then you will be covered according to the terms of your policy.

Most car insurance companies offer 2 types of auto insurance coverage for accidents involving total loss. The most common is blue book value.

Blue book value is the value of your car according to the Kelly Blue Book which may or may not accurately represent the value of your vehicle but is a fair enough standard of value for car insurance companies to use in order to calculate a replacement value.

The other type is guaranteed replacement value which is often used for classic or exotic cars where the policyholder and insurance company agree on a replacement value at the time of issuance. Regardless of the book value at the time of a total loss accident the auto insurance company will pay out the pre-determined replacement value.

For Late Model Cars

This is the depressing part about typical car insurance as auto insurance companies value your car based on a depreciation schedule. Late models cars can generally depreciate 25% or more as soon as they leave the car dealership so if an accident involving total loss occurs in the first year or two of ownership you will likely receive a lot less than you paid.

GAP insurance is very important (almost critical) for anyone financing or leasing a new car. Why GAP insurance is so important is that it covers the GAP between the book value and your loan amount so you are not upside down if a total loss happens. Imagine buying a $40,000 car with no money down, getting in a total loss accident 18 months later where your car insurance company determines the value to be $26,000 but you still owe $35,000 on the note. Without GAP insurance you will be personally liable for the $9,000 difference! For older models the GAP is not very much (if any) as cars depreciate the most in the first couple years. GAP insurance is critical to owners of late model cars.

For Older Model Cars

For owners of older model cars (non-classic) the most important coverage to have is collision and comprehensive coverage to be protected in the event of a total loss accident. You may also want to inquire how much your car insurance company values the replacement cost of your vehicle at every year just to stay informed.

For Classic Cars

Owners of classic, vintage or automobile owners surely never want to use a depreciation schedule but have a guaranteed replacement value known well ahead of time. Car insurance companies like the Hagerty Car Insurance Company specialize in antique cars and offer guaranteed replacement coverage for all insured vehicles

Modified Cars

One of the most common ways to get burned in a total loss accident is by having a modified car and not informing your car insurance company of such modifications. Some car modifications can actually negate your insurance policy (causing an insurance company to decline your claim) and that $5,000 stereo may never be covered. No matter what modification you make to a vehicle always inform your auto insurer about the modification and ask about replacement insurance to cover the full cost of the modification if the vehicle is ever subject to a total loss accident.

Contact car insurance companies direct to learn more about insurance coverage in a total loss accident. Ask about replacement coverage, book value and GAP insurance – make sure you understand exactly how much you are covered for.

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