Whether it’s an older car or a brand new vehicle, it’s upsetting to receive word that your vehicle has been declared a total loss by the car insurance company. It may come as a surprise to some that car accidents are not always the cause of a totaled vehicle. Check out our guide for several common causes of a totaled car. No matter how it was totaled, though, it's important to move quickly to the next steps when considering what to do with it. Here are some options.
- What Does 'Totaled Car' Actually Mean?
- What To Do With a Totaled Car?
- FAQs
- Take Your Time to Decide
- Related Topics
Quick Answer: What To Do With a Totaled Car?
When your car is totaled, you generally have four main options:
- Accept the insurance payout
- Buy back your totaled car from the insurance company
- Sell it to a salvage yard
- Donate the vehicle to charity
What Does 'Totaled Car' Actually Mean?
First things first, it helps to be on the same page with the auto insurance company by understanding what a “totaled car” actually means. Essentially, the term is applied when the cost of repairs to fix a vehicle is determined to be greater than what the car is worth, as determined by your insurance policy’s own calculation of the vehicle’s actual cash value (ACV). This math is never quite as simple as it sounds, but your insurance company can likely provide you with some hints on how they determine the value of your vehicle, as well as the cost of repairing it.
Understanding Actual Cash Value (ACV)
Your car's ACV is what the insurance company determines your vehicle was worth immediately before the accident occurred. ACV is calculated based on your vehicle's age, mileage, and condition, as well as market trends and depreciation.
State-by-State Total Loss Thresholds
Insurance companies use two different methods to determine when a car is totaled, depending on your state.
Total Loss Formula (TLF) States
Twenty-three states use the Total Loss Formula method. Under this system, a vehicle is declared a total loss when:
Repair Cost + Salvage Value ≥ Actual Cash Value (ACV)
Example: If your car's ACV is $10,000, repair costs are $7,500, and salvage value is $2,800, your car would be totaled because $10,300 exceeds the $10,000 ACV.
TLF States: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Maine, Massachusetts, Mississippi, Montana, New Jersey, New Mexico, Ohio, Pennsylvania, South Dakota, Utah, Vermont, and Washington.
Total Loss Threshold (TLT) States
The remaining states use a percentage threshold. Your car is totaled when repair costs exceed a specific percentage of its ACV:
- 60% threshold: Oklahoma
- 65% threshold: Nevada
- 70% threshold: Arkansas, Indiana, Iowa, Wisconsin
- 75% threshold: Alabama, Kansas, Kentucky, Louisiana, Maryland, Michigan, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Rhode Island, South Carolina, Tennessee, Virginia, West Virginia, Wyoming, Washington D.C.
- 80% threshold: Florida, Minnesota, Missouri, Oregon
- 100% threshold: Colorado, Texas
Note: Colorado and Texas appear in both lists because they use dual criteria—vehicles may be totaled under either the TLF method or the 100% threshold.
What To Do With a Totaled Car?
| Option | Best For | Pros | Cons |
|---|---|---|---|
| Accept Payout | Quick replacement vehicle | Usually quick and simple, and the insurance handles the disposal | May not cover what you owe on your loan; the initial offer can be low |
| Buy Back | If your car has sentimental value or if you have DIY repair skills | You keep the car and can potentially harvest the parts | You may have insurance issues in the future if you get a salvage title for the vehicle |
| Sell to a Salvage Yard | If you're dissatisfied with the other offer | Potentially higher payout; pickup | Requires shopping around; could be time-consuming |
| Donate | Charitable giving | Tax deduction; feel-good factor | No monetary compensation |
Option 1: Take the Insurance Company’s Payout
Accepting an insurance company's payout means you agree that the settlement resolves the claim and provides funds toward purchasing a new car. While taking the first offer is often the simplest path forward, insurance settlements are negotiable—many people who negotiate receive more than the initial offer.
How to Negotiate Your Settlement
| Step | Action | What to Look For |
|---|---|---|
| 1. Establish Baseline | Use CarGurus' Car Valuation tool | Get reliable fair market value for your vehicle |
| 2. Request Report | Ask insurer for detailed valuation report | Review comparables used, depreciation calculation, and condition rating |
| 3. Check for Errors | Review report carefully | Missing features (leather seats, sunroof), incorrect mileage, wrong trim level, recent upgrades not considered |
| 4. Gather Evidence | Collect supporting documentation | Service records, original window sticker, pre-accident photos, recent repair receipts, local comparable listings |
| 5. Submit Counteroffer | Present evidence with your case | Process typically takes just a few hours—worst case, they say no |
Understanding Car Loans and Gap Insurance
Even if your car is totaled, you remain legally obligated to pay off your entire car loan. The insurance settlement check goes directly to your lender, not to you, because the lender holds a lien on the vehicle
- The Problem: Insurance only pays your car's Actual Cash Value (ACV) at the time of the accident—usually significantly less than what you originally paid. If you owe more than the insurance payout, you must pay the difference out of pocket.
- The Solution: Gap insurance (Guaranteed Asset Protection) covers the difference between what you owe on your car loan or lease and your car's actual cash value (ACV), so you're not stuck paying for a car you can no longer drive.
- Example: You owe $25,000 on your car loan when you have an accident. The insurance company determines your car's ACV is $20,000. Without gap insurance, you still owe $5,000 on a car you can no longer drive. Gap insurance covers that $5,000 balance.
hirouki naki via Getty Images
Option 2: Buy the Car Back From the Insurance Company
This pathway is for those who want to keep their totaled vehicle despite the insurance company's total loss determination.
Important: An insurance buyback is not an easy option for most people.
How the Buyback Process Works:
- Your insurance company pays you the vehicle's Actual Cash Value (ACV)
- You pay the insurance company the estimated salvage auction value
- You take possession of the vehicle with a salvage title
Who Should Consider This Option:
- Owners of cars with sentimental value
- People with DIY repair skills or knowledge, or access to someone with that expertise
- Those interested in parting out the vehicle for profit
Legal and Title Considerations
- Salvage Title Requirements: If you repair the vehicle, you must understand your state's laws for re-establishing roadworthiness before it can be legally driven on public roads. Even after repairs, the car will permanently carry a salvage title.
- State Restrictions: Some states don't allow you to buy back a totaled vehicle. However, exemptions may exist for certain situations, such as hail damage to body panels that doesn't affect drivability.
Insurance Coverage After Buyback
Repairing a totaled car affects future insurance coverage options:
| Coverage Type | Availability |
|---|---|
| Liability Insurance | Generally still available |
| Comprehensive Insurance | Most insurers won't offer for salvage-titled vehicles |
| Collision Insurance | Most insurers won't offer for salvage-titled vehicles |
If an insurer does offer comprehensive or collision coverage, they will likely inspect the car first to determine what will be covered and excluded.
Rental Car Coverage: You may be entitled to a rental car as part of your insurance coverage while you arrange a replacement vehicle. Some companies also offer reimbursement for transportation expenses.
Benjamin Rondel via Getty Images
Option 3: Sell the Totaled Car to a Salvage Yard
If the value of your vehicle presented by the insurance company seems impossibly low, another option is to name your own price and shop the totaled car around to different junkyards and salvage yards. This is another opportunity to maximize the value of your car by leveraging its salvage value.
Once a deal is set, many salvage yards will even come and pick up the vehicle for free. Dealerships might accept a totaled car as part of the trade-in process; however, don’t expect to get top dollar. Salvaged vehicles don’t carry high resale prices, and dealerships are usually not involved in reprocessing totaled cars. Check the market value for similar vehicles.
Option 4: Donate the Totaled Car to Charity
Donating your totaled car to charity is a great option for those who don’t care about the monetary potential. And there’s a feel-good aspect, too! CarGurus can take you through donating your car to a charitable group. As with the salvage yard option, the donation services will often offer free pickup services.
Most charities will accept vehicles in any condition, even if they don't run, as long as they can be towed. However, some organizations have minimum requirements, so check with the charity ahead of time so you're not surprised by any restrictions.
Another perk of donating the vehicle is that the value of the vehicle, in its tragic state, is potentially tax-deductible. Take note, however, that if the value of the vehicle is more than $5,000, the IRS will expect you to complete additional forms and get an additional appraisal from a qualified appraiser.
FAQs
Should I accept the insurance company's first offer for my totaled car?
You should almost never accept an offer without researching your car's value. Insurance companies may make low initial offers, expecting negotiation. Review the valuation report carefully, check comparable vehicles in your area, and present evidence to support a higher value.
Can you negotiate a totaled car settlement?
Yes. The settlement amount is written into your insurance policy as negotiable. Gather evidence of your car's value through CarGurus' Valuation tool, comparable vehicle listings, and documentation of upgrades or recent maintenance. Present this evidence to the adjuster along with a clear counteroffer.
What happens to my totaled car?
If you accept the insurance payout, the insurance company takes possession of your totaled vehicle. They then typically sell it at auction to salvage yards, rebuilders, or parts dealers. The salvage value they receive helps offset what they paid you. Alternatively, you can buy the car back from them (paying them the salvage value), sell it yourself to a junkyard, or donate it to charity.
What is a salvage title, and how does it affect my car?
A salvage title is a designation that permanently marks a vehicle as having been declared a total loss by an insurance company. Even after repairs, the car will always carry this title. This can reduce the resale value and make it difficult to obtain comprehensive or collision insurance. Additionally, you must pass state inspection to get a 'rebuilt' title before driving it legally. A salvage title can never be converted back to a clean title.
What if you don't have car insurance?
Some drivers, especially those whose car has very little value, may wonder if they can forgo an insurance policy completely. This can be a compelling option; if your motor vehicle's ACV is so low that virtually any insurance claim would leave it totaled, why not save on the premiums and leave it uninsured? Being an underinsured or uninsured motorist might save you money upfront, but it's generally not a great idea. There is no federal mandate, but while New Hampshire and Virginia state laws don't require car insurance, virtually every other state does. Plus, if you're taking out a car loan, you'll find most lenders require insurance coverage. Additionally, even if you can get away without comprehensive coverage or collision coverage on your vehicle, most states require liability insurance and property damage liability coverage in case you have a car accident where another party is impacted or suffers personal injury.
Take Your Time to Decide
Coming to an abrupt end to your vehicle’s ownership can be a worrisome and frustrating moment. Take your time, don't rush into accepting a settlement or buying back the car. Choose the option that works best for you and investigate it further to avoid encountering more unanticipated events.
