Here's What Happens if You Total Your Car

In 2021, there were more than 6 million motor vehicle accidents in the U.S. that involved death, injury, or property damage reported to the police, according to the National Highway Traffic Safety Administration. In some of these accidents, drivers were left with a totaled car.

A car is totaled when it is damaged so badly that the cost of repairing it simply does not make sense. For example, if a car is worth $15,000 and it would cost $20,000 to fix it following a collision, pulling the money out of a checking account and paying to repair the car wouldn't be the right course of action. Instead, the car would be declared totaled.

But, what does that mean for the car's owner, and what happens when a car is totaled? Here's what drivers need to know about how a totaled car affects their auto insurance.

Insurance may cut a check for the fair market value of the vehicle

If the accident was covered by insurance, the insurer who is responsible for picking up the tab will provide a payment for the vehicle.

This could be another driver's insurer if someone else caused the accident that totaled the car. Or the car owner's comprehensive or collision coverage could be the one paying for the vehicle if the owner caused the crash or something else totaled the car, like a tree falling on it.

Regardless of which insurer pays the money, the insurance company is going to provide a payment for the fair market value of the vehicle based on its condition at the time of the accident. If the car owner's own insurance company is covering the costs, this payment will be equal to the fair market value minus the driver's deductible (if any).

Any outstanding car loan balance must be repaid

If the driver of the totaled car still has a car loan on it, the loan balance must still be paid in full when the car is totaled. This can sometimes be a problem if the fair market value of the car is less than the amount owed on the auto loan. For example, if a driver owes $25,000 on a car that's only worth $20,000, the insurer would only pay $20,000 and the other $5,000 still must be paid.

It's pretty common for a car's market value to be less than the amount owed on it since cars lose value quickly. Plus, many people take car loans with long payoff terms so they don't make much progress on paying their balance down quickly.

Drivers who have an auto loan should have gap insurance for that reason. Gap insurance pays the difference between the amount owed and the amount the insurer pays. It has to be purchased before an accident happens though.

The insurer will dispose of the salvage vehicle

When a vehicle is totaled, it gets a salvage title.

The insurer will take ownership of the vehicle when it provides the total loss check and will deal with the vehicle in an appropriate way, sometimes by selling to a company that rehabilitates and sells salvage cars. If a driver wants to keep their totaled vehicle, their insurance payout would be reduced by the salvage value of the car.

It's important to be prepared for each of these three realities when a car is totaled. Drivers should also know it can take a few weeks before everything is resolved and they get their check to go and buy a new vehicle to get around. Some car insurance policies provide money to rent a vehicle during this interim period, so drivers should be sure to check if theirs does -- or should put an alternate plan in place in case a serious crash does occur.