Understanding a Total Loss
My car has been declared a total loss. What does that mean? Ala. Code § 32-8-87(d).
We all have heard or experienced how a new car loses value the minute your drive it off the car lot. By some accounts, your new vehicle depreciates by more than 10% the second you drive it off the lot. By the end of the first year of ownership of a new car, you are likely to lose another 10% in value. Under Alabama law, if your car is a total loss, you are limited to the “fair retail value” of your car. Many times, the value to the car to the owner is much more than the fair retail value of a car. You may have an older car that you have kept well maintained and you plan on keeping for a long time. The fair market value of such a car would be substantially less than what it would take to replace this vehicle.
What is a total loss?
Under Alabama law, your vehicle is total loss if the cost of repairs exceeds 75% of the “fair retail value” of your vehicle.
What happens after my vehicle has been declared a total loss?
Either the at-fault driver’s insurance or your insurance (assuming you have collision coverage) will pay you the fair market value of your vehicle.
What if I owe more than my car is worth?
Unfortunately, you will be responsible for the difference between what you owe on the vehicle and the fair retail value your vehicle.
Gap insurance is optional insurance offered by some insurance companies that can be added to your policy. Gap insurance pays the difference between what you owed on your vehicle and what you were paid for your vehicle.
Can I keep vehicle even if it has been declared a total loss?
Yes. The insurance company will pay you the fair market value of your vehicle less the salvage value. Typically, the salvage value of a vehicle is less than $1,000.00.
You will be issued a salvage title. You cannot drive your vehicle on the public roads or have a valid license plate with a salvage title. Once you have your vehicle repaired and have it inspected, you will be issued a rebuilt title. A vehicle with a rebuilt title can be driven on the public roads. If you sell a vehicle with a rebuilt title, you must disclose this fact to the prospective purchaser.