What happens when your car is totaled?

Written by Ziyad Bakkali

Reviewed by Daniel Mirkovic

Updated June 20, 2024 | Published May 30, 2024

Getting into an accident is stressful enough, but it’s even worse when your car is totaled. You’re left stranded and wondering — what now? Fortunately, your car insurance should be able to help you out.

In this article, we explain when a car is considered totaled, how insurance companies determine its value, what compensation you can expect, and how you can get back on the road as quickly as possible.

Image showing a severe car crash between two grey vehicles

When is a car totaled?

A totaled car is a vehicle that an insurer considers no longer repairable or too costly to repair. To put it another way, a car is totaled when the cost to repair it is more than its worth before the accident.

A totaled car doesn’t necessarily mean it’s completely destroyed. It could have extensive damage or look fine on the outside. It just means the cost to restore it back to a safe and functional condition is too much to justify. It’s more economical for the insurance company to offer a cash settlement. The insurance company will make arrangements to have the vehicle signed over to the salvage vendor. In most cases, the vehicle will likely be sold as parts.

How do insurance companies determine if a car is totaled?

After you file a claim, an appraiser will assess the damage to your vehicle to make this determination. They’ll assess the damage and determine your car’s actual cash value (ACV), which is what someone would have reasonably paid for it right before the loss occurred. Typically, they’ll consider factors like the car’s model, mileage, and condition, but the assessment process may vary from insurer to insurer.

Next, the appraiser will estimate the cost to repair your car, making it safe and drivable again.

If the repair cost exceeds 75% of the car’s ACV, the insurer considers it a total loss.

For example, let’s say your reliable five-year-old car is valued at $15,000 at the time of loss, accounting for depreciation. After being wrecked in an accident, your insurer estimates it would cost $16,000 to repair. For the insurer, it doesn’t make financial sense to pay more in repairs than the car is worth, so they’ll consider it a total loss.

Some insurers may even consider a car totaled if the repair costs fall below the car’s ACV by 20% to 30%. This threshold varies between insurers and provinces, so it’s important to check your policy conditions.

Does insurance pay for a totaled car?

The answer depends on whether your car is owned outright, financed, or leased.

If you own the car (you have no outstanding payments owing), you’ll receive an amount equal to the car’s ACV, minus any deductibles that may apply on your policy.

So, in the wrecked car example above, after the insurer takes possession of the car, they’ll offer you a cash settlement (minus any deductibles) equal to its pre-accident value, which would be $15,000.

So, applying the scenario above, if you owe $3,000 on your car loan at the time of loss and its ACV is $15,000, the insurer will pay $3,000 to the lender first. Since the settlement amount exceeds the outstanding loan balance, you’ll receive the remaining $12,000 (less your deductible if applicable) as compensation for the loss. You can use these funds to purchase a new car, or as you see fit.

Some insurance providers offer drivers the option of adding replacement cost coverage to their policies as an endorsement in exchange for a higher premium. In a total loss situation, your insurer would cover the costs of replacing your car with an entirely new one, usually the same model. If they can’t find your exact model, they’ll either:

  • Look for an alternative that’s considered equal in value and has similar features and functionality.
  • Offer the cash equivalent of that car’s current market value — as indicated on the endorsement.

Normally, replacement cost coverage does come with a higher payout compared to ACV. However, there might be exclusions on your policy that could limit the extent of this coverage. For instance, some insurers restrict replacement cost coverage to cars that are older than 3 years from the date they were delivered to the first owner. Others may also impose mileage restrictions, so cars driven above a certain mileage threshold would not be covered. These conditions may vary from one policy to another, so again, be sure to review your specific policy wording carefully.

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What insurance do you need to be compensated for a totaled car?

Generally, in car insurance, there are several coverages that insure a totaled car, depending on the circumstances. In most cases, you’ll receive compensation for damage to your vehicle if your policy includes the following:

  • Collision coverage, which responds if you get in an accident with another vehicle or object, and you are at fault. If you are not at fault and your car is totaled, the payment will come from Direct Compensation Property Damage (DCPD) coverage instead.If the fault is shared between you and another driver, the settlement would be split between the two coverages. Collision coverage is optional (unless you’ve leased or financed the car). DCPD is standard in each province that uses it, though some provinces allow drivers to opt-out.
  • Comprehensive coverage, which covers damage to your car caused by events other than collisions, such as theft, fire, vandalism, and weather events.

If you’ve opted for all perils car insurance, which combines collision and comprehensive coverage under a single coverage, you’ll be covered for the totaled car up to its ACV, as well as a wide range of other risks.

As for replacement cost coverage, many insurers require that you have both collision and comprehensive coverage at the time of loss to benefit from it — they won’t reimburse you with a replacement otherwise.

  • If the other driver caused the collision and you are not at fault, you can file a legal suit against them to attempt to recover your losses. If they’re found liable for the damages to your car, their third-party liability coverage will respond to pay for the settlement, but only up to the limits they’ve selected.
  • If you’ve added loss of use coverage to your policy, your insurer will pay to cover the costs of renting a car or using alternative transportation while your vehicle is being repaired or replaced.

It’s important to note that not all policies are designed the same. Policy limits and conditions often vary from one insurance company to another, so make sure to review them carefully.

How long does it take to be paid out after a car has been totaled?

The timeframe for receiving a payout after a car is totaled can vary depending on several factors, including:

  • Your insurance company’s processing times. If the insurer is experiencing high claims volumes, especially complex ones, it might delay how quickly they can respond to your claim.
  • The complexity of the claim. Insurers typically settle straightforward cases with minimal damage assessment and clear fault determination faster.
  • Negotiations. If you and your insurer disagree about the car’s value or the cause of the accident, it might take longer to reach a settlement.
  • Loan or lease payoff. If your totaled car has an outstanding loan or lease, your insurer will need to settle the remaining balance with the lender before you receive the remaining funds.

Generally, you can expect to receive a payout within two to three weeks for uncomplicated claims.

Commonly asked questions

Can you keep a car that has been totaled or written off?

In some cases, yes, insurers will let you buy the vehicle from them as part of the settlement. After an insurer declares a totaled car a write-off, they’ll take possession of it as salvage and offer you a settlement equal to the car’s fair market value, or ACV. Whether you choose to receive monetary compensation or buy the car from the insurer, the value of your settlement will be the same.

However, if you decide to keep the car, you will not be able to drive it right away. It’ll likely come with a salvage title — a branding on the car that indicates it’s been damaged significantly and is not road-safe in its current condition. You might also need to prove that you have the means of getting it repaired or rebuilt. Your insurance won’t cover these expenses, so expect to pay those costs out-of-pocket.

Will a total loss claim affect your insurance premium?

Whether a total loss claim will affect your premium mostly depends on whether you were at fault or not. If you were responsible for the accident that totaled your car, your premium will likely increase. If the other driver was at fault, or you were not at fault, the impact on your premium might be minimal or nonexistent, depending on your insurer’s guidelines.

Want to learn more? Visit our Car insurance resource centre for dozens of helpful articles to guide you through the complexities of car insurance. Or, get an online quote in under 5 minutes and find out how affordable personalized car insurance can be.

About the expert: Daniel Mirkovic

A co-founder of Square One with 25 years of experience in the insurance industry, Daniel was previously vice president of the insurance and travel divisions at the British Columbia Automobile Association. Daniel has a bachelor of commerce and a Master of Business Administration (MBA) from the Sauder School of Business at the University of British Columbia. He holds a Canadian Accredited Insurance Broker (CAIB) designation and a general insurance license level 3 in BC, Alberta, Saskatchewan, Manitoba and Ontario.

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