What Is the Definition of a Totaled Car?
A totaled vehicle is one that has sustained severe damage as a result of a collision, natural disaster or other event. While the subject comes up occasionally in casual conversation, many drivers are unaware of the true definition and impact of a totaled car until their car is declared totaled by an insurance company.
The insurance definition of a totaled vehicle can vary greatly from an individual's opinion of the damage. However, there is an established settlement process and even a small chance for recourse in the event that an individual thinks the settlement or designation is unfair.
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Personal Definition
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An individual may consider his car totaled if his vehicle has sustained significant damage or if he cannot afford to restore the car to working order following a collision, natural disaster or other damaging incident.
In conversation, the term "totaled car" does not always refer to a vehicle that is truly damaged beyond repair but merely one that is severely damaged and may not be repairable by the owner. This is particularly true in incidences where the driver did not have any insurance coverage or minimal liability coverage only.
Insurance Definition
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Insurance companies will deem a car "totaled" if the cost to repair the automobile exceeds a certain percentage of its current worth. It is important to thoroughly review insurance documents for this percentage when purchasing coverage, as it can vary by company, coverage, state law and other limitations. The percentage at which a car is deemed totaled can range from 51 percent to 80 percent of its market value at the time the damage was sustained.
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Settlement
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If there is insurance coverage on the vehicle, the damaged car will be inspected by an insurance adjuster. This adjuster will look at the amount of damage and the cost to repair it as compared with the current value of the vehicle (before damages). If it exceeds a certain threshold, the insurance company will settle rather than repair the vehicle.
The settlement will consider the make, model, mileage and condition of the vehicle and compare it with similar vehicles in the local area. Depending on state law and/or insurance company guidelines, the settlement may include sales tax, title and registration fees.
Financed Vehicles
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Financed or leased vehicles that are deemed a total loss by an insurance company often result in additional fees and liability for the driver. Because an insurance settlement is based on the current value of the vehicle and not the original purchase agreement price, there is usually a gap between the amount of money the insurance company will pay and the amount owed to the financing company.
Some contracts, especially those for leased vehicles, include gap insurance coverage. As the name implies, this coverage will pay the remaining balance due to the financing or leasing company after the total settlement is paid.
In incidents where gap insurance coverage is not in effect, however, the driver who had purchased or leased the vehicle is liable for the remaining balance.
Contesting
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There are limited means of recourse when a driver feels that her vehicle has been unfairly deemed totaled by an insurance company. The confines of the auto insurance policy limit the insurance company's liability and set strict rules on what it does and does not have to do in instances where the vehicle exceeds a certain damage threshold.
Even if the car is deemed a total loss, the driver may decide to have it repaired anyway. The insurance company still has to pay a settlement. However, the cost of the deductible and the amount the company would have recovered by selling it at a salvage yard will be subtracted from the total before the settlement is issued. In order to pursue this course, the claims adjuster must be informed as soon as possible that the driver prefers the car be retained and not sold.
The insurance company does not have to comply. If the car is newer and could be sold at a reasonable rate for parts, the company can sell the vehicle despite the driver's requests.
More commonly, drivers complain that the settlement amount is inadequate and unfair. If this is the case, an individual must hire an independent appraiser to perform an inspection of the vehicle and document the inspection thoroughly. This will be done at the driver's expense. The report can then be shown to the insurance company, which may or may not agree to increase the settlement price.
If the company refuses, recourse can be pursued in the form of arbitration or litigation. The cost for either process can vastly exceed the value of the vehicle. It is important to weigh the potential benefit against the definite cost before these courses are pursued.
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