Who Gets the Insurance Check When a Car Is Totaled?

I’ve been in only one serious car accident. Thankfully, no one was hurt, but the insurance company totaled my mom’s 1995 Plymouth minivan. Although the damage was only to the back of the car, the repairs would have cost more than the car was worth. Thankfully, we owned the car free and clear, so we received a check from our insurance company that helped us purchase a new-to-us vehicle.

However, determining who gets the insurance check when a car is totaled can depend on multiple factors, though it’s mainly based on who owns the vehicle. For example, if you owe money on your car loan or lease a vehicle, the check might go directly to your financing or leasing company, leaving you in the lurch when looking for a replacement car.

Let’s examine what it means to have a vehicle totaled and who gets the insurance check.

Key takeaways

• A car is totaled if the cost of repairs exceeds its value or the damage makes it unrepairable.
• Who receives the insurance check after a car is totaled depends on whether you have an outstanding auto loan or lease.
• Having the right level of insurance coverage is vital to ensuring you’re covered after an accident, especially if your car is totaled.

What does it mean for a car to be totaled?

Being in an accident doesn’t automatically mean your car will be totaled. The car insurance company uses specific thresholds and formulas to determine if a vehicle is repairable or totaled. However, if your car is damaged beyond repair or the cost to repair it is more than the vehicle’s worth, the insurance company will declare it a total loss.

After an accident, the insurance company will send an appraiser. They’ll review – among other things – the extent of the damage, the potential repair costs, your car's overall condition, mileage, and its current worth, which is called the actual cash value (ACV).

In the case of my mom’s minivan, the ACV was about $2,000, but repairing the damage was estimated at $3,000. Since repairs would cost more than the car was worth, the insurance company totaled it instead of paying for the repairs.

In addition to the factors above, the insurance company will consider your state’s total loss threshold when deciding to total a vehicle.

Total loss thresholds are percentages defined by state law (although some states don’t have them) and generally range from 60% to 100% of the vehicle’s value. For example, if your car is worth $5,000 and your state’s total loss threshold is 70%, the cost to repair damages must exceed $3,500 before the insurance company can declare the car a total loss.

Some states use a total loss formula instead, which compares the ACV against the cost of repairs plus the car's salvage value. If the latter is higher than the ACV, the insurer will likely declare your vehicle a total loss.

Effects on your insurance payout amount

After your insurer has officially listed your vehicle as totaled, the insurer will likely send you a settlement offer. If you accept it, you’ll receive your car's ACV minus any deductible.

Some insurance companies offer new car replacement policies. If you have this add-on coverage and meet the requirements, you may receive enough funds to purchase a new vehicle rather than getting your vehicle's ACV.

If you decide to keep the car, you’ll receive a smaller payout, usually the difference between the actual cash and salvage values. The salvage value is the amount the vehicle is worth to a salvage buyer who wants the car for parts.

My parents chose to keep the minivan and accepted the difference between the ACV and the salvage price, since the damage mainly affected the trunk. Instead of the $2,000 the car was worth, my parents received a check for around $800.

If you keep the car, you’ll likely need to apply for a salvage title, sometimes called a branded title. You generally can’t register or legally drive vehicles with salvage titles. Depending on your state’s laws, you might be able to rebuild and sell the car, but it must pass a state safety test and have a rebuilt title issued. It can also be challenging to get insurance for a rebuilt car.

How the claims process works for a totaled car

Before your car is declared a total loss, you must go through the claims process with the insurance company.

1. Consider applicable coverages

Depending on the circumstances of your accident, different insurance coverages may apply, such as:

• Liability: When another car’s driver is at fault for an accident that totaled your car, their liability policy should pay for the damages.
• Collision: This insurance covers damage due to an accident you caused with another vehicle or a stationary object, like a tree or telephone pole.
• Comprehensive: This coverage pays to repair or replace your car if someone steals it or it becomes damaged due to anything other than an accident with another vehicle or stationary object. For example, comprehensive coverage generally handles damage from fires, vandalism, hail, flooding, falling objects, or collisions with wildlife.
• Uninsured/underinsured motorist: This provides coverage if the driver who hits you doesn’t have insurance or enough of it. It can help you repair or replace your car after a hit-and-run accident.
• Guaranteed asset protection (GAP): If a car is totaled while you’re still paying for it, you’re responsible for the loan or lease balance, even if you can’t drive it anymore. GAP insurance covers the difference between what a vehicle is worth and the amount left on your loan or lease. It helps ensure you don’t have to continue making payments on a totaled vehicle.

2. File the insurance claim

The steps to filing a claim after an accident can vary depending on the insurance carrier.

Once you’ve confirmed that everyone is okay after the accident and arranged a tow if your vehicle isn’t drivable, you must call your insurance company and file a claim as soon as possible.

Some insurance companies or policies have deadlines for submitting claims or supporting documents after the date of the accident. Missing those deadlines could cause substantial delays, and the insurance company could deny the claim.

Depending on the insurance company, you may be able to start a claim online or through the company’s mobile app.

You’ll need to provide some information, including:

• Complete contact information, insurance details, and vehicle descriptions of those involved
• Accident details, such as the specific location, time, and road/weather conditions
• Photos showing the vehicle damage from multiple angles
• Accident report copy and the names and badge numbers of the responding officers

If you lease your car or have an auto loan, you should also call the leasing or financing company to inform them about the accident and ask about any requirements you may need to fulfill.

3. Understand your insurance policy

Even if you file a claim online, call your insurance company and ask the representative about your insurance coverage, deductible, and the company’s specific claims process.

Some of the best car insurance companies offer rental car coverage as a policy add-on, which can help you cover rental costs after an accident. However, it usually covers only a specific dollar amount for a certain number of days.

You might be responsible for paying a deductible. But if you weren’t at fault in the accident, you might be able to get that money back from the other driver’s liability insurance. A disappearing deductible feature on your policy could also lower your out-of-pocket costs.

4. Work with the adjuster

Once you’ve filed your claim, the insurance company will send an adjuster to assess the damage. The insurer may send the adjuster to your chosen repair shop or move your car to a storage facility where the adjuster can better evaluate the vehicle.

As noted above, if the cost to repair your car is more than it is worth (its ACV), the vehicle will be declared a total loss, and the insurance company will send you a settlement offer for the car's actual cash value minus any deductible.

5. Settle the claim

If you accept the insurance company’s offer, they’ll send the check to the right party. You’ll need to remove all personal items from the car and sign over the title to the insurance company so that they can take ownership. The insurance company will likely sell the vehicle for parts to recoup some costs.

Who gets the insurance check when a car is totaled?

The time it takes to receive your settlement can vary based on the circumstances of the accident and your insurance company. Some companies can process the payment within a week of settling, while others may take longer.

Who gets the insurance check when a car is totaled depends on who legally owns the vehicle at the time of the accident.

If you own your car: If you own the vehicle outright, you’ll receive the settlement check provided by the insurance company. You can use that money to purchase a new vehicle or choose to spend or save it as you prefer. My parents used the settlement as a downpayment on a used car.

If you have a car loan: You’re still financially responsible for any outstanding car loan balance, even if the vehicle is totaled. The insurance company often sends some or all of the settlement amount directly to your financing company. If there is money after paying off the loan, you’ll get a check for the remaining amount.

For example, if your car was worth $10,000, but you still owed $6,000 on your loan, the insurance company will send your loan company a check for $6,000 and you a check for $4,000, minus any deductible.

If you lease: The insurance company will pay the vehicle's ACV directly to the leasing company, minus any deductible. Unless you have GAP insurance, you'll have to pay the difference if the total payment is less than what you owe on the lease. If the amount paid exceeds the lease balance, you should receive the remainder.

What happens if the check isn’t enough?

If the settlement amount isn’t enough to cover your loan or lease, you’re responsible for paying the balance even if you don’t own the car anymore. That is why having GAP or loan/lease payoff insurance is vital, especially if you have a new or expensive car.

If you disagree with the settlement the insurance company offers, you can try to negotiate with them. To give you the best chance of receiving a higher amount, do your research by:

• Getting used car quotes showing that the car is worth more
• Looking online at Edmonds, Kelly Blue Book, or J.D. Power for vehicles of the same make, model, and year that sell for more money than the ACV provided by the insurance company
• Documenting any features or added parts that make the car more valuable

You can also check your insurance policy to see if it includes an appraisal provision. This would allow you or the insurer to get an independent appraisal to help resolve disagreements about your settlement amount.

Although it won't help you in a current situation, it's also wise to review and update your coverage amounts to help protect you in future accidents.

How a totaled car can impact your insurance rates

The accident’s circumstances determine how much your car insurance rates will change.

For example, your rate will likely increase if you’re at fault in the accident. How much it goes up depends on several factors, including your driving record and the cost and severity of the accident.

However, even if you weren’t at fault, your rates could still go up depending on your insurance company’s policies and where you live. It’s unfair, but even though you weren’t at fault, the accident can cause your insurer to see you as a higher risk of having more accidents.

Where you live determines how long an accident will stay on your record. Although each state differs, many retain accident records for 3 to 5 years after the incident.

Many insurance companies offer policy add-ons like accident forgiveness to help you avoid a rate hike. If you add accident forgiveness, your rate usually won't increase after your first accident. However, depending on your insurance provider, you may have to have a certain amount of accident-free driving before you qualify for this feature.

You can find ways to save money on car insurance, even if you have an accident on your record. In addition to adding an accident forgiveness policy, consider things like:

• Increasing your deductible
• Requesting quotes from multiple carriers to find the best rate
• Asking about the discounts you qualify for, including group or low mileage discounts
• Reviewing and possibly reducing your coverage
• Maintaining a good credit score
• Driving safely
• Bundling your insurance with a home or renters policy

FAQs

Bottom line

Having your car declared a total loss is stressful. While it ultimately worked out for my parents, others aren’t so lucky. I hope you never have a serious car accident, but you should help protect yourself financially before an accident happens by ensuring you have adequate car insurance coverage.

If you’re still paying for a loan or lease, consider adding GAP or loan/lease payoff coverage to help protect you further. Remember to file a claim immediately after an accident to help you get back on the road as quickly and safely as possible. If you experience problems with your settlement or the claims process, you might consider speaking with an accident attorney.