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 following a total loss to streamline your settlement, and provide expert advice on how to help best prepare for the unexpected. 

What does it mean when my car is declared a total loss?

When the damages to your vehicle are equal to or greater than a certain percentage of your vehicle’s Actual Cash Value (ACV), it’s considered a total loss. This percentage varies by state, with the average total loss threshold averaging 75%.

First Steps: What To Do Immediately Following an 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 help expedite the process.

Step 1: Know the Location of Your Vehicle’s Title

A title is a legal form you receive upon purchase of your vehicle. This document formally declares you the owner of your vehicle. You should receive a title when you purchase your car new or used, whether from a dealer or a private citizen. 

The title is required to process a total loss vehicle, so having this document easily accessible is crucial to moving forward with the settlement process quickly and efficiently.

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Step 2: Identify your Lienholder(s)

A lienholder is a financial institution that has either leased a vehicle to you or given you money on loan to buy the vehicle. 

The lienholder’s information is necessary when settling, as they have an insurable interest in the vehicle. 

Step 3: Request a Letter of Guarantee

Once your lienholder is notified that the vehicle is a total loss, they must provide a “Letter of Guarantee” stating the current payoff for the loan. If the valuation for your vehicle is above the payoff amount, your insurance company will pay the lienholder first and any left over money would go directly to the named person(s) on the title.

Step 4: Obtain Your Lien Release Document

If your loan is paid off through the total loss process, you should receive a lien release document from your lienholder. This document states that the financial institution no longer has an insurable interest in your vehicle.

Step 5: Send a Copy of Your Lien Release to Your Insurance Agent

When you receive the lien release, it’s important to provide a copy to your agency so your insurance company can remove the lienholder from your auto policy. This shift will indicate that that party no longer has a financial interest in your automobile.  

“I’ve seen many examples of a vehicle being paid off previously, but still noting a lienholder on the policy,” says Adam Halde, property claim representative at Central Insurance. “And by law, if a lienholder is noted on the policy, your insurance company must name them on any settlement check unless you can provide documentation supporting that they no longer hold a financial interest in the vehicle.” 

For this reason, ensuring that documentation is passed off to your agent in a timely manner following a total loss is crucial.

How to Prepare for the Unexpected

Having vehicle records that are organized and easily accessible is one small way to make a huge impact when it comes to dealing with a total loss. Eliminating the need to search for or collect various documents from different sources after an accident helps streamline processes and can help you get your settlement sooner.

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Auto policy experts at Central suggest maintaining a folder dedicated to each vehicle you own. Within each folder there should be copies of your vehicle’s: 

  • Title documents
  • Lienholder documents
  • Repair records
  • Insurance records 

With a system like this, if a vehicle you own has been declared a total loss due to an accident, locating everything you need to start working toward recovery will be easy and efficient.

Note: This article was originally published in January 2017. It has since been updated for accuracy.


7 responses to “How to Handle a Total Loss Vehicle Claim”

  1. When your Car gets damaged, before considering it as a total loss, it is good to check the title location and the Line Holders.

    1. Thank you for the comment! I find it is helpful to keep all of the original vehicle documents together for quick access and safe keeping. I personally keep all of my original and important vehicle documents in a file folder located in a fire resistant safe.

  2. Hello Team,

    Thanks for sharing your nice and informative words. Above tips are fabulous and helps every Auto owner to handle a total loss vehicle claim effectively to get maximize coverage. Informative stuff. I would also like to share some informative stuff with your readers. Please also check. Steps to Claim Car Insurance after Car theft

    Thomson John

  3. Robert Campbell Avatar
    Robert Campbell

    No answered my question…if the lienholder has my vehicle insured and myself the policy holder does the lienholder get both settlements? ??

  4. Sorry I did not see an original comment. I am confused by your question, are you saying where does the settlement go if the lienholder is also on the vehicle? If that is the case, a valuation is run and then the lien is paid off (if enough funds) and anything left over goes directly to the Named party on the title as the lienholder no longer has a financial interest in the vehicle.

  5. I like that you talked about how the percentage varies by state, with the average total loss threshold averaging 75%. Our car is now broken, so now we have to deal with its insurance. We are not knowledgeable about this topic, so we should probably ask for a total loss service.

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