If your vehicle is severely damaged in a collision or other covered event (such as a severe hailstorm or hurricane), it may be declared “totaled” by the insurance company covering the claim. This means that the cost of repairing the automobile exceeds its resale value before the incident.

If the request is approvedyou can use the settlement to purchase a replacement vehicle. You can also buy back your entire automobile from your insurer – sometimes for as little as 10 to 25% of its fair market value – and restore it to roadworthy condition.

State law dictates how and when you can buy back a salvage vehicle, and it may not make financial sense. Likewise, reporting a vehicle as a total loss – even if it is running and in good condition – will affect its resale value, and some carriers will not insure an automobile with a salvage title.

• An insurer declares a vehicle totaled when repair costs exceed a certain percentage of its actual cash value.
• Once your vehicle is declared a total loss, the insurance company will take possession of it and offer you a replacement or – if you want your old car back – a cash settlement based on its cash value.
• Cash value is based on a vehicle’s fair market value minus what it would be worth if sold for salvage purposes.
• State law dictates whether or not you can retain ownership of your totaled vehicle and what is required to legally drive it.

When an insurance company declares a vehicle “totaled,” it means that repair costs exceed a certain percentage of its value. actual cash value (ACV) or the resale value before the incident.

“It doesn’t necessarily mean the car is out of control. It may still be functional, but considered not worth the cost of repairs,” says Dennis Shirshikov, professor of economics and finance at the City University of New York/Queens College.

Carriers use one of two methods to determine if the car is a total (totaled) loss. The first is to establish a simple loss percentage threshold, typically equating to 70% to 80% of the car’s ACV.

“If the repairs exceed this threshold, they are considered complete,” specifies Michael Benoit, president of Pacific United Insurance. “However, state laws may impact this threshold. In some states, the threshold is lower for certain types of vehicles, such as trucks or SUVs.

In other words, Benoit explains, a vehicle that doesn’t appear seriously damaged after an accident can still be written off altogether.

Alternately, car insurance companies may use a total loss formula that evaluates whether the costs of repairing a vehicle exceed its cash value minus salvage value. For example, if an automobile is worth $17,000 and its salvage value is $7,500, but the repair estimate is $12,000, your insurance will declare the automobile a total loss.

Cash value represents the value of your car in its current damaged state. This is the amount you will receive from an insurer if you wish to retain ownership of your totaled vehicle rather than using the settlement to purchase a replacement vehicle.

Typically, this is calculated by determining the fair market value of the vehicle before damage, then subtracting the amount it would be worth if sold to a salvage yard for parts or scrap metal. Your insurer will also subtract any applicable amountcar insurance excess. He will then return your totaled vehicle, as well as the redemption amount. For example:

• The real value of your car: $15,000
• Estimated Salvage Value: $7,500
• Collision insurance excess: $500
• Surrender value: $7,000

Experts say the cash value may be as little as 10 to 25 percent of a vehicle’s fair market value, although it will likely be higher. But this amount will vary considerably depending on the particularities of your vehicle:

• Do
• Model
• Year
• Physical and mechanical condition
• Market demand for salvage vehicles and parts

“You’d be surprised how much the cash value can vary,” says Benoit. “For example, if you own a luxury vehicle or a car with hard-to-find parts, the buyout price could be higher. »

Time is running out if you want to buy your vehicle back from the insurer after it has been declared a total loss. Here’s what to do once you’ve filed a claim and it’s been approved:

1. Receive a settlement offer from the insurance company based on the vehicle’s ACV.
2. Inform the insurer that you want to buy back the car rather than accept their payment.
3. The insurer will calculate the cash value of your vehicle and present it to you for approval.
4. Once you accept the offer, you will get the car back, but it will come with a salvage title, meaning it has been officially declared a total loss.
5. Make all necessary repairs.
6. Have the car inspected and re-titled for road use according to your state’s laws.

There are many things to consider before committing to purchasing a total automobile. Here’s what the pros recommend:

• Request quotes from multiple repair shops. Sometimes the initial estimate doesn’t cover hidden damage, which could add hundreds or thousands of dollars to the actual cost of restoring your vehicle’s drivability.
• Check your state’s salvage title regulations. These will dictate whether you can retain ownership and what steps must be taken to restore your car to legal drivability.
• Buy insurance. Finding a carrier willing to insure your salvaged vehicle can be more difficult and an insurance policy can be quite expensive.
• Given the resale value. Salvage vehicles generally have a lower market value, experts say. This may not matter if you plan to drive your car for years, but it could pose a problem if you need to sell it in the near future.

Buying back a vehicle declared a total loss is not a viable option for everyone. Instead, consider these alternatives to buying back your car once it has been totaled:

1. Accept full payment. If your vehicle has been declared a total loss, the insurer will ask you if you want to replace it with a comparable model. Or, if you own your vehicle, you can accept a settlement offer for the actual cash value of your car and spend it as you wish, and the insurer will retain ownership of your old car.
2. Sell ​​the car yourself to a salvage yard. Conversely, you may choose not to accept any insurance settlement and keep your unused vehicle to sell it yourself for scrap metal or parts. This may result in a better price than what the insurance company is offering you.
3. Donate the vehicle to charity. The salvage value could be used as a tax deduction.

If your vehicle is leased or financed, you will still owe money if it is totaled and the insurance payment does not cover the entire balance owed. This is why it is essential to have gap insurancewhich covers the difference between the car’s value (its fair market value or actual cash value) and what you owe.

For example, if your automobile is valued at $15,000 but you owe $18,000, gap insurance would cover the $3,000 difference. Although this coverage is optional for most drivers, lenders and leasing agencies often require it.

Just because an insurer has declared your vehicle a total loss does not mean it is undrivable or beyond repair. For example, a car may be considered destroyed because it suffered serious (and costly) cosmetic hail damage to the sheet metal and windows. However, mechanically, it is still as healthy as before the hail.

State law dictates whether or not you can drive a totaled vehicle and the steps needed to get it back into roadworthy condition. In Illinois, for example, a vehicle declared a total loss may only be kept and driven if it is at least 9 years old or has hail damage that does not affect operational safety.

A totally destroyed car usually cannot be driven until it has been repaired and inspected. Depending on your state’s laws, it will likely need to be renamed with a reconstruction or salvage title.