In auto insurance, the term “total loss” is used when the cost to repair a vehicle exceeds its current market value. When this happens, the insurance company does not repair the vehicle. Instead, it pays the owner the car’s Actual Cash Value (ACV).
How is a vehicle declared a total loss?
If you are involved in an accident and the other driver is at fault, their insurance pays the value of your vehicle under their Liability coverage, subject to their policy limits.
When the damage is caused by other covered events, or when the at-fault driver has no insurance, different coverages on your own policy may apply to a total loss.
Comprehensive coverage protects your vehicle against events beyond your control. If your car is declared a total loss due to fire, covered natural disasters, or hitting an animal, this coverage pays the vehicle’s value minus your deductible.
Collision coverage applies when your vehicle is declared a total loss after a collision with another vehicle or object. In this case, the insurer pays the value of the car minus the deductible you selected.
Uninsured or Underinsured Motorist coverage may apply when an uninsured driver causes the accident and your vehicle is declared a total loss, subject to specific terms and conditions of the policy.
What if my car is financed and declared a total loss?
If your vehicle is financed and suffers a covered total loss, the insurance company typically pays the lender or dealership directly. If the amount you owe on the loan is higher than the vehicle’s ACV, the insurer will only pay the vehicle’s value, and you are responsible for the remaining balance.
To avoid this situation, many insurers offer Gap Insurance. This optional coverage helps pay the difference between what you owe on the loan and the vehicle’s current value, preventing you from being left with a balance after a total loss.
Every case is different, and the right guidance matters. At Calidad Insurance, we’re ready to explain your options, review your coverage, and help you stay protected with the insurance you and your family need.
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