If you want to buy a new car after a total loss, you’ll probably want to wait until you receive your insurance settlement money. If your insurer pays you the car’s actual cash value, it may or may not be enough to cover the cost of a new vehicle.

Your payout after a total loss depends on whether you had collision coverage or new car replacement insurance.
Once your totaled vehicle is assessed and you settle with the company, you’ll receive a check. The payout process usually takes a few weeks.
After you cash your check, you’ll know how much you can spend on a new car.

What is a total loss?

Insurance companies consider a car is a total loss if any of the following conditions are met:

The cost of repairs is greater than the value of the vehicle

The car cannot be repaired enough to be driven safely

State law deems there is enough damage to consider it a total loss

Many states use the total loss threshold to determine whether a car is totaled. This is a percentage of the car’s market value. If damages exceed the percentage, the vehicle will be declared a total loss instead of repaired.

The total loss thresholds vary by state, but most are around 70% to 80% of the car’s market value.

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Does the car insurance company buy you a new car?

The insurance company usually does not buy you a new car to replace a totaled one. But you can use the insurance payout to put toward a new vehicle.

If you have

collision coverage

, you will be reimbursed for the

actual cash value (ACV)

of the vehicle. This will take depreciation into account.

If you have

new car replacement insurance

, you’ll receive enough money to purchase a brand-new car of the same make and model—minus your deductible—regardless of depreciation.

You were in an accident—now what?

Accidents can be scary and the aftermath can feel overwhelming. If everyone is safe, pause and take a deep breath. Then get started with a claim as quickly as possible, as getting a new car can take a while.

Here’s what should happen following an accident.

Call the police

Calling the police is not something to avoid or overlook when you’ve had an accident. It’s the lawful thing to do, and it will help your insurance company determine the ACV if they have an official accident report.

Call your insurance company

Get in touch with your insurance company right away to begin the claims process. Ask your agent for the name of an insurance-approved towing company and mechanic.

Some companies require you to use a specific location, so it’s wise to check with them before you have the vehicle towed.

Have a mechanic assess the damage

A car is declared a total loss when the amount to fix the car is more than the car is worth.

A certified mechanic will need to inspect your vehicle to determine the extent of the damage. The mechanic will usually communicate directly with your insurance company, so using a mechanic your insurer recommends is helpful.

Determine the actual cash value of your car

Your insurance company will make the final decision about whether your car is a total loss based on its ACV.

Several factors go into this formula:

Mileage on the odometer

Condition of the vehicle

Any upgrades or improvements you’ve made

Your insurance company will determine the actual cash value (ACV) of your car, but you may be able to negotiate if you think it’s too low and you have proof you’ve kept the car in excellent condition.

MORE:

How does the insurance company determine the value of a totaled car?

Get your paperwork in order

While the mechanic assesses your car and the insurance company crunches numbers, here are a few things you should do:

Find your title: The insurance company will essentially be buying the vehicle from you after a total loss, and they will need the title. If you’ve financed your car, the title will be in the lender’s name. Sign it over to the insurance company.

Gather sales receipts, maintenance records, and photos of your car: These will help you demonstrate your car’s value. If you made major upgrades, share that with the insurance adjuster, as it will factor into the ACV and the final payout.

Research the value of the car: Research how much your car might be worth so you’re ready to either accept or negotiate the insurance company’s settlement offer.

Kelley Blue Book

and

Edmunds

are two great resources.

Settlement and how to buy a car after a total loss

Once the insurance company declares the car a total loss and assesses its value, they will offer you a settlement. If you did your homework, you’ll be ready to sign the settlement and accept the offer if it seems reasonable.

If you think your car is worth more, be ready to show photos and receipts of the car’s condition and upgrades to back up your position.

After you sign a settlement agreement, you can expect a check for the agreed amount to arrive in 2-4 weeks. The check will be mailed directly to you if you don’t owe anything on the car, and you can use it to purchase another vehicle.

If the car was financed, the insurance company will send the check to the lender and you’ll receive anything over and above your outstanding loan.

If you

still owe money on your loan after the settlement

, you will need to pay the balance. This cost may be covered if you carry

gap insurance

. Otherwise, the burden of payment falls on you.

Now, you can start the process of

buying a new car

Key Takeaway Any money from your insurance settlement will first go towards paying off your car loan. If there’s a balance remaining, you’ll receive it by check.

MORE:

How to get the best totaled car payout

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