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Insurance

What is Total Loss?

When a vehicle is damaged to the extent that the cost of repairs exceeds the vehicle's actual cash value, or when the vehicle cannot be safely repaired.

Understanding Total Loss

Insurance companies use different thresholds (typically 70-100% of vehicle value) to determine total loss. When totaled, the insurer pays the actual cash value minus any deductible. Gap insurance can cover the difference between ACV and loan balance.

Examples

  • 1Older car with $5,000 value needing $4,500 in repairs
  • 2Vehicle with frame damage that cannot be safely repaired
  • 3Flood-damaged car with extensive electrical problems

Why This Matters in Legal Cases

Total loss determinations frequently lead to disputes because insurance companies and vehicle owners often disagree on the car's actual cash value. Insurers use their own valuation tools that may undervalue vehicles, leaving clients owing money on their car loans (a "gap") or unable to afford a comparable replacement. Understanding how to challenge a total loss valuation is a common need.

Explaining to Clients

Advise clients that they do not have to accept the insurance company's first total loss offer. They can research comparable vehicle sales in their area, get independent appraisals, and negotiate. If they owe more on the car than the insurance payout, gap insurance (if they have it) covers the difference. They should also remove personal belongings before the insurance company takes possession.

Frequently Asked Questions

How does the insurance company determine if my car is totaled?

Insurance companies compare the repair cost to the vehicle's actual cash value (ACV). If repairs exceed a threshold percentage of ACV (typically 70-100%, varying by state and insurer), the car is declared a total loss. Some states set this threshold by law, while others leave it to the insurer's discretion.

Can I keep my car after it is declared a total loss?

In most cases, yes. You can negotiate to keep the vehicle by accepting a reduced payout (the ACV minus the salvage value). The vehicle will receive a salvage title, which significantly reduces its future value and may affect your ability to insure or register it depending on your state.

What if I owe more on my car loan than the insurance payout?

This is called being "upside down" on your loan. The insurance company only pays the actual cash value, not the loan balance. Gap insurance covers this difference. If you do not have gap insurance, you are responsible for paying the remaining loan balance out of pocket.

Sources

Related Terms

Diminished Value

The reduction in a vehicle's market value after it has been damaged in an accident and repaired, compared to a similar vehicle that was never damaged.

Gap Insurance

Insurance coverage that pays the difference between a vehicle's actual cash value and the outstanding balance on the owner's auto loan or lease if the vehicle is totaled.

Uninsured Motorist Coverage

Insurance coverage that protects you if you're injured by a driver who has no liability insurance or insufficient coverage to pay for your damages.

No-Fault Insurance

An auto insurance system where each driver's own insurance pays for their medical expenses and lost wages regardless of who caused the accident.

Bad Faith Insurance

When an insurance company unreasonably denies, delays, or underpays a valid claim, or fails to properly investigate or defend its insured.

Last updated: January 24, 2026
Reviewed by: Quilia Legal Content Team

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