If you have a comprehensive car insurance policy, your insurance company will compensate you for a new vehicle after a total loss accident.
Most insurance companies consider a vehicle totaled when the cost of repairs exceeds the value of the vehicle. A car can also be destroyed if it cannot be repaired safely.
After you file the claim, your insurance company may take several weeks or months to issue a payment, depending on whether or not you have a loan.
Once you receive the settlement, you can go out and buy a new car. Here’s what you need to know about buying a new car after a total loss.
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How is the value of the car determined?
One of the first steps an insurance company will take after a major accident is to determine the value of your car. Typically, a fitter will examine the vehicle, determine if repairs can be made, and provide an estimate. During the inspection process, your adjuster will pay attention to:
- The mileage on your odometer.
- The extent of the damage.
- The condition of the vehicle body.
If repairs can be made, you will be compensated for the estimated cost of the repairs, less your deductible. If the adjuster concludes that the car is totaled, your payment will be calculated based on the actual cash value (ACV) of your car. This figure is equal to the new value of your vehicle, less depreciation.
Does the insurance company buy you a new car?
If your car is destroyed in a covered accident, you will receive money to buy a new one. However, the amount of money you will receive depends on the type of insurance coverage you have.
For example, if you added new car replacement coverage as an endorsement to your policy, you may be able to purchase a new vehicle similar to the old one. Some companies also offer replacement cost coverage for an additional fee, which provides a larger payout in the event of a total loss.
If you don’t have these optional coverages, but you do have collision insurance, your insurance company will still give you money to replace your vehicle.
However, you will only be compensated based on the VBC of your car at the time of the accident, minus your deductible for collision insurance.
If you have a loan on the car, the insurance company is not required to reimburse it. They will only give you the value of your car, which could put you in debt if you owe more on the loan than the vehicle is worth.
In this situation, gap insurance is beneficial. If your car is totaled, gap insurance pays the difference between what you still owe and the value of your vehicle. Gap insurance is an optional policy sold by most auto insurance companies and some lenders.
What if you have liability only insurance?
Car insurance companies only provide compensation after a total loss accident if you have collision coverage, which is optional coverage. If you have a minimum coverage policy with liability only insurance, you are not covered if you cause an accident and your car is destroyed.
In this case, you would be responsible for buying a new car entirely out of pocket. Although no one imagines that their car will be destroyed, having a comprehensive insurance policy is valuable for this reason.
However, the situation is different if you are not responsible for the accident. If you have a minimum coverage policy and you are hit by another driver, their damage liability insurance will provide you with money to replace your car.
How fast will you get your total loss check?
If you have an auto loan, your insurance company will likely pay your lender directly. Remember that your lender technically owns the vehicle until you pay it off.
If your lender receives the check, the process may take up to a few months, depending on the insurance company and lender’s procedures. Once the lender is paid, any remaining balance will go to you.
If you own the vehicle, the insurance check will be sent to you. This process usually takes a few weeks. However, the exact time will depend on how your insurance company handles documents and payments. If the payment is made electronically, it could take less time.
Buying a new vehicle after a total loss
The process of buying a new vehicle after a total loss depends on whether you have a loan. If you always pay off a loan when the car is finished, your lender will get the money and you can keep the rest.
Depending on how much you receive, you may be able to invest that money in a new car and pay the rest with your savings.
If you own the vehicle, you can spend your entire paycheck on a new car. Once the money is in your account, you can go to the dealership, choose a new vehicle and collect the keys. Be sure to add the new car to your auto insurance policy and keep proof of insurance in your vehicle.
Are you allowed to keep the car and repair it yourself?
Once a vehicle is declared a total loss, the insurance company will auction the vehicle off or sell it to a scrapyard and keep the proceeds of the sale. Some states allow you to keep your vehicle totaled.
However, you must obtain an estimate of the fair market value of the salvage, which is then deducted from the final settlement you receive from the insurance company.
It is important to note that in many states when you choose this option, your vehicle will have a salvage title. You are not allowed to register the car until all repairs have been completed and a new title has been applied for. Also, you may not be able to get collision or comprehensive insurance on a rebuilt salvage car.
Finance & Insurance Writer
Elizabeth Rivelli is a freelance writer with over three years of personal finance and insurance experience. She has in-depth knowledge of the different branches of insurance, including automobile insurance and property insurance. His byline has appeared in dozens of online financial publications, including The Balance, Investopedia, Reviews.com, Forbes and Bankrate.
