When a car is deemed a total loss, it means the cost to repair the vehicle exceeds a certain percentage of the car’s value, often between 70% to 80%, depending on the state or insurance policy. At this point, your insurance company typically makes a payout for the vehicle’s actual cash value, minus any deductible.
Keeping an insurance policy active on a totaled vehicle usually doesn’t make sense for several reasons:
No Utility: A totaled car is not roadworthy or safe to drive, and therefore, it is not practical to continue paying for coverage, especially liability insurance, which protects you from damage or loss you might cause to others.
Financial Considerations: Continuing to pay premiums for a car that you can no longer use represents an unnecessary financial burden. Once you’ve resolved the claim and received compensation, it’s generally best to cancel the policy and stop covering a vehicle that is not operational.
State Requirements: Most states require vehicle insurance only for cars that are registered and street-legal. After a vehicle is totaled, it’s usually deregistered and is no longer subject to these requirements, negating the need for maintaining a policy.
Salvage Value Scenarios: If you decide to keep the car for its salvage value, perhaps intending to use it for parts or repair it somehow, you would need to investigate a different type of policy. While you won’t need typical full-coverage insurance, you might opt for limited liability if the vehicle is repaired and licensed roadworthy, or comprehensive insurance for when it’s parked.
Loan and Leasing Requirements: If the car was financed or leased, lenders or leasing companies might require you to maintain insurance until the claim process is completed. Verify with them if you can cancel the insurance policy after the vehicle is declared a total loss, or if continuous coverage is stipulated under the financing agreement until the loan is settled or the terms are modified.
Ultimately, the general consensus is to discontinue the policy unless there are unique circumstances, such as salvage retention or pending financial obligations. Always confirm with your insurance provider and lender about when it’s appropriate to cancel coverage after a total loss.
