Hearing that your vehicle has been declared a total loss can be frustrating. But not knowing what to do after that declaration can be downright stressful.
In this article, we define a total loss, outline the five steps you should take after a total loss to streamline your settlement, and provide expert advice on how best to prepare for the unexpected.
What does it mean when my car is declared a total loss?
When the damage to your vehicle is equal to or greater than a certain percentage of your vehicle’s actual cash value (ACV), it is considered a total loss. This percentage varies by state, with the average total loss threshold averaging 75%.
First steps: What to do immediately after a total loss accident
What should I do if my car is a total loss?
If you find yourself in a situation where your vehicle is declared a total loss, there are five steps you can take to speed up the process.
Step 1: Find out the location of your vehicle’s title
A title is a legal form you receive when purchasing your vehicle. This document formally declares you the owner of your vehicle. You should get a title when you buy your car new or used, whether it’s from a dealer or a private citizen.
The title is required to process a total loss fund, so having this document readily available is critical to moving forward with the settlement process quickly and efficiently.
Step 2: Identify your Lienholder(s)
A lien holder is a financial institution that has either leased you a vehicle or loaned you money to purchase the vehicle.
The lien holder’s details are necessary for liquidation, as they have an insurable interest in the vehicle.
Step 3: Request a letter of guarantee
Once your lien holder has been notified that the vehicle is a total loss, they must provide a “guarantee letter” stating the current payment for the loan. If the valuation of your vehicle exceeds the payout amount, your insurance company will pay the lien holder first and any remaining money will go directly to the person(s) named on the title.
Step 4: Get your lien release document
If your loan is paid off through the total loss process, you should get one foreclosed release documents from your lien holder. This document states that the financial institution no longer has an insurable interest in your vehicle.
Step 5: Send a copy of your lien to your insurance agent
When you receive the lien release, it is important to provide a copy to your agency so that your insurance company can remove the lien holder from your auto insurance policy. This change will indicate that that party no longer has a financial interest in your car.
“I’ve seen many examples of a vehicle being paid off in the past, but still listing a lien holder on the policy,” says Adam Halde, property claims agent at Central insurance. “And by law, if a lien holder is listed on the policy, your insurance company must name them on all settlement checks unless you can provide documentation to support that they no longer have a financial interest in the vehicle.”
For this reason, it is critical to ensure that documentation is sent to your agent in a timely manner following a total loss.
How to prepare for the unexpected
Having vehicle records that are organized and easily accessible is a small way to make a huge impact when dealing with a total loss. Eliminating the need to search for or collect different documents from different sources after an accident helps streamline processes and can help you get your settlement faster.
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Auto policy experts at Central suggest maintaining a folder dedicated to each vehicle you own. In each folder there should be copies of your vehicle’s:
- Title document
- Pawnbroker deeds
- Repair registry
- Insurance register
With a system like this, if a vehicle you own has been declared a total loss due to an accident, it will be easy and efficient to find everything you need to start working toward recovery.
Note: This article was originally published in January 2017. It has since been updated for accuracy.