Answering the question of whether you should buy back your car after an insurer declares it totaled is more complicated than it sounds.
Our knee-jerk answer is probably not.
However, there are certain situations where buying back a vehicle the insurance company totaled might make sense.
What is a Totaled Car?
Without wading into the tall grass, a totaled car is one that the insurance company deems will cost more to repair than the vehicle is worth. In such cases, the insurance company will stroke out a check to you for the car’s book value minus any deductible and any outstanding loan balance.
More often than not, the insurance company then sells the wreck to a salvage yard, pocketing the cash.
You are left carless, armed with your insurance settlement, to find another vehicle.
What is Book Value?
Essentially, book value is the standard value of a car based on assorted data, such as transaction amounts, local market conditions, seasonal trends, and so forth. The most experienced and often referenced source is Kelley Blue Book, a sister publication of Autotrader.
How is Total Loss Determined?
Depending on the state in which you live, the state may have established a cost threshold for totaling a car. In other words, if the cost of repairing your wrecked car exceeds a percentage of its current book value, the insurance company must total it.
For example, in New York, the set percentage is 75%. If your car’s book value is $10,000, your insurance company will declare it totaled if the repair costs exceed $7,500. The insurance company determines the projected repair costs by securing estimates or using some internal method.
In states without an established cost threshold, insurance companies use what is known as a total loss formula (TLF).
However, the TLF may vary from one insurance company to the next. Basically, if the estimated cost of the repairs plus the estimated scrap value exceeds the car’s book value, the insurance company will almost always total it.
What are Your Options?
It could be possible that most of the damage to your wrecked car is solely cosmetic. However, if it’s old enough and its book value is low enough, it could still exceed maximum repair limits despite all of the damage being cosmetic. That is to say, it is still completely operational, but the insurance company declares it a total loss.
In such a case, you might consider trying to buy it back. Again, your ability to buy it depends on your state’s laws and the insurance company’s policies.
If you decide to buy back your totaled car, you will need to restore it to a condition in which it is safe to drive and insurable.
As all of this is going on, you will need to continue making the payments on any existing car loan and keep up with the insurance payments.
However, in instances where the car cannot be salvaged, your insurance company will give you a check to cover your car’s book value. Once you have received your check, you are free to purchase your next vehicle, whether you want to buy a new or a used car.
What are the Steps to Buying Back a Totaled Car?
- Get repair estimates. Get started by securing estimates for needed repairs.
- Find out the value of your car. Determine your car’s book value.
- Call your lender. If you have an existing balance on a car loan, contact your lender for the payoff amount.
- Let the insurer know your plans. Immediately inform your intentions to the insurance company covering the loss.
- Fill out the paperwork. Contact your local DMV, requesting any required forms and paperwork.
What are the Downsides of Buying Your Totaled Car?
- Hidden damage: When evaluating a wrecked car’s damage and repair costs, there is no way to know the extent of hidden damage. This is why insurance companies often declare a car a total loss when the damage may seem quite minor. They know the odds of repair costs rising once the process begins are high.
- Loss of value: Once an insurance company has declared your car totaled, it’s a stigma that will haunt it. Once repaired, the state will issue a new title to identify the vehicle as “Salvaged” or “Reconditioned.” Both will affect your ability to sell the vehicle in the future and may prevent some insurance companies from insuring it.
- Cost of keeping it: Yes, the insurance company will still cut you a check. It will, however, be minus the estimated salvage amount and the payoff amount of any existing loans on the car. You still must pay to get it into running shape and up to inspection standards. There may be other costs, as well. For instance, you may need to rent a car as you are waiting for yours to be repaired.
- Lots of hassle: You should also weigh the amount of time and effort you will spend fulfilling all the requirements to hang on to this car. When it’s all said and done, you may be saddled with a vehicle you can’t insure or sell to anyone but a scrapyard.
TIP: If you do not plan on buying back your old vehicle, it is smart to use our Car Affordability Calculator to find out what you can afford.
What are the Upsides to Buying Your Totaled Car?
Not buying another car: In cases where the damage is mostly, if not all, cosmetic, the costs of keeping that totaled car may cost less than buying another one. This is particularly true if your car is several years old. Replacing it with a newer model will certainly cost more than your insurance settlement.
Sentimental reasons: Perhaps you have a history with your car that makes walking away from it too much to bear. Even if it does cost you money to keep it, dealing with the expense and all the hassle may be worth it. It’s not the path we recommend, but we get it.
How to Reduce the Negative Impact of a Totaled Car
Whether you keep your totaled car or not, you can improve your financial situation by planning ahead. This means having the full range of insurance. We will not go into too much detail here, but being fully insured can take some of the sting from your car being declared a total loss.
Common Types of Insurance to Consider:
- Collision – This covers damage to your car from a moving crash. That is, if you drive into another car, tree, fence, or other objects.
- Comprehensive – This covers damage from non-crash events like a falling tree, hail, vandalism, and so forth.
- Uninsured motorist – You and your vehicle are covered when a motorist without insurance is at fault in a crash.
- GAP – From the moment you drive your car off a dealer’s lot, your car loses value. Over the initial couple of years, that loss is significant. If you secured a loan to pay for it, the chances are good that you owe more than the car’s current book value. If that’s the case when an insurance company declares your car a total loss, you will be stuck paying that difference. Gap insurance will step in and cover that difference (gap) in your coverage.
- New car replacement insurance – If you buy a new car, you may be able to get coverage that will replace your car with a similar vehicle. Think of it as GAP insurance 2.0.
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Editor’s Note: This article has been updated for accuracy since it was originally published.