The payout: In this case, your car will be deemed a total loss and you will receive an insurance payout, minus your deductible. The payout will cover the car’s ACV just before the accident up to your policy limit.

For instance, if the actual cash value of your totaled vehicle is $20,000 and you have a $1,000 deductible, you will receive $19,000 as your payout.

You can request a new assessment if you disagree with the appraisal. Use Kelley Blue Book to search for cars similar to yours in your zip code.

Note that lenders usually require borrowers to carry collision insurance just in case of this exact scenario, although liability coverage is the minimum required in most states.

MORE:

How to get the best totaled car payout

What happens if you crash your car on finance

Let’s say that your financed car is totaled in a car accident and it isn’t fully paid off yet. You had comprehensive coverage in your car insurance policy, so you

file an insurance claim

to recoup the value of your vehicle.

If you don't owe more than the car is worth: Your auto insurance company will either give the payout directly to your lender or they will make out a check for you to sign off to your lender. Your insurance company keeps the amount you owe, and you can keep the rest of the settlement for yourself.

For example, if you owe $5,000 on your loan, you would get to keep $14,000 of a $19,000 payout on your claim.

If you do owe more than the car is worth: In this case, the insurance company will send the full payout amount to your lender and you will still owe additional money to the lender.

Yes, you can still owe money on a totaled car that you no longer own! Since the value of new vehicles depreciates quickly, it’s not uncommon to end up owing more than the car is worth, especially if your car is less than half paid off. The same is true if you have a longer-term loan or high interest rate.

For example, if you owe $22,000 on the $20,000 car mentioned earlier, your total settlement check of $19,000 would go to your lender—but you will still owe an additional $3,000 on the remaining balance.

To avoid becoming

upside down

on your car loan, it’s a good idea to invest in

gap insurance

to help cover the difference if your car ends up totaled.

Key Takeaway If your insurance payout doesn’t cover all the money you owe and you don’t have gap coverage, you will have to make up the difference out of pocket.

MORE:

When your car is totaled and you don’t have gap insurance

Will I still have to pay insurance on a totaled car?

No. Once a car is totaled, it doesn’t belong to you anymore—so you don’t have to pay for insurance coverage.

Can I keep my totaled car?

Maybe. It depends on your car insurance company and your state.

Even if you are able to

keep a totaled car,

it’s usually not worth it. More often than not, insurance companies will simply auction off totaled cars.

Repurchase process: In some states, you may have the option to repurchase the vehicle.

The insurance company receives bids from their usual salvage buyers.

The fair market value of your car is agreed upon by the appraiser.

The salvage value of your totaled car is deducted from your insurance settlement.

Retitling: Once you make a total loss on a financed car, most states require a

salvage title

. Vehicles with salvage titles are notoriously difficult to sell and they’re not legal to drive.

The vehicle could be costly to repair and potentially dangerous to drive if the damage goes undetected. You’ll also pay higher insurance premiums and likely won’t be able to purchase collision coverage or comprehensive insurance until you get a

rebuilt title

Will car insurance cover the sales tax when replacing a totaled car?

Yes, in most cases—but it depends on the specific state laws where you live. If your sales tax is reimbursed, your settlement will cover the tax on your totaled car, not your new car.

You may have to reach out to your insurance company to request this reimbursement, and some states have a 30-day time limit to do so.

Here are the total loss car insurance settlements and sales tax by state:

State	Total loss car insurance settlements and sales tax
Alaska	No state sales tax in Alaska. When the insurance policy provides for the adjustment and settlement of first-party auto total loss based on ACV or replacement with another of like kind and quality, the insurer must offer a comparable replacement a vehicle with all applicable taxes, license fees, and other fees paid.
Arkansas	When the insurance policy provides for the adjustment and settlement of a first-party auto total loss, the insurer must either (1) offer a replacement auto with all applicable "taxes, license fees, and other fees" paid, or (2) make a cash settlement which includes all applicable taxes, license fees, and other fees.
California	Insurer must offer a cash settlement based upon the actual cost of a "comparable auto", including all applicable taxes and other fees, or offer a replacement comparable auto including all applicable taxes, license fees, and other fees.
Florida	When the insurance policy provides for the adjustment and settlement of first-party auto total losses on the basis of ACV or replacement with another of like kind and quality, the insurer must pay sales tax.
Georgia	Insurer must (1) offer a cash equivalent settlement based upon the ACV of a "comparable auto" including all applicable taxes and other fees, or (2) offer a replacement auto including all applicable taxes, license fees, and other fees.
Kentucky	If the policy provides for the settlement of first-party auto total loss, the insurer may elect to either (1) offer a replacement auto that is at least comparable including all applicable taxes, license fees, or other fees, or (2) offer a cash settlement based on the actual cost of a comparable vehicle, including all applicable taxes, license fees, or other fees.
New York	Insurer is required to reimburse the insured with the ACV. This means either repairing the damaged item or replacing it with an item substantially identical including sales tax.
Texas	Motor vehicle sale and use tax is not due when an insurer takes title to the vehicle as a result of a total loss. However, motor vehicle sale and use tax are due when the insurer purchases a replacement vehicle for the insured on a total loss claim.

Key Takeaway Check your state insurance laws to see if you’re covered for the sales tax on your replacement vehicle.

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Frequently asked questions

Will totaling a car affect my credit score?

Not directly, but it could affect your score once your car loan is paid off. Eliminating one of your oldest and lowest loans might have a slightly negative effect on your

credit score

, while eliminating a loan that you still had a lot of money owing on may improve your credit score.

How do I get a new car after my old car is totaled?

You are free to shop for a new car as you please. Be sure to check in with your state requirements to find out if your insurance covers the sales tax on your new vehicle.

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