Why You May Not Want Insurance to “Total” Your Car

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Your car – a 12-year-old vehicle in good working order – is involved in an accident, and needs substantial repair work.

The total cost of the repairs are in the $5,000 range, which is right about what the car’s book value is. The insurance company suggests totaling the car, by offering you a check for $5,000, rather than going through the repair process which also has the potential of costing even more.

Due to the age of the car, and the fact that you’re now looking at a $5,000 cash windfall, the idea of accepting the check and using it as a down payment on a new car suddenly looks appealing. Is that the right course of action?

Sometimes – but not always.

While I will admit that accepting the check and replacing the car is probably the path most people would take, there are several reasons why you might refuse it and go with repairing the car instead.


You may not be ready to buy a new car – and the loan that comes with it

$5,000 is an attractive amount of money, but it won’t come close to buying a brand-new car. The most it will do is act as a reasonable down payment. You’ll have to make up the difference by taking a loan to fully pay for the car. With an average car costing around $25,000, this could mean taking a loan of $20,000. That could result in a monthly car payment of $400-$500.

You may be ready for a new car – heck, nearly everybody is – but are you ready for a hefty new car payment? Since your car is well over 10 years old, you probably don’t have a loan on. You probably haven’t have a loan on it for several years.

As great as a new car will be, taking on a new, large monthly payment can be a budget buster, especially if you have not had a car payment for several years. That payment could eat up all the money in your budget that would otherwise go for savings, the payoff of other debts, or even next summer’s vacation.

Instinctively, allowing the insurance company to total the car may seem like the right thing to do. But there’s a very real possibility that it will turn out to be a much more expensive option in the long run.

The car may be more valuable than what your insurance will total it for

It’s very difficult to value the true worth of an older car. Sure, there are car valuation websites, like Kelly Blue Book that provide generally accepted values on both new and used cars, but some cars just run better and longer than other cars of the same age.

Part of it may have to do with how well you as the owner have taken care of the car over it’s lifetime. If you have been particularly ambitious about this, and the car is extremely well-maintained, it may be worth far more to you than it’s technical book value.

You may decide that fixing the car and keeping it will be the least expensive option. After all, replacing it with a brand-new car will substantially increase your cost of living. And trying to replace it with a similar aged vehicle will be no better than a crap-shoot – there’s no way you can know if the previous owner has maintained the vehicle in anything like the manner that you have.

You may be able to get the car fixed for less money

If you have no mechanical abilities, and are forced to rely upon repair shops for needed repairs, accepting the insurance company’s check to total the car could be the best way to go. But if you can do a lot of repair work yourself, or if you have the ability to get it repaired by others at less than full-service shop fees, it may be less expensive for you to repair the vehicle.

For example, if you can fully repair the car by using used car parts, and either do the work yourself, or have it done by a “friend in the business”, you’ll save thousands of dollars over having it repaired by full-service mechanic.

Full-service repair shops, and especially body shops, often see wrecked cars as a cash cow, and charge premium prices. But if you have the ability and resources to work outside of the system, you may be better to go the repair route.

Replacement components may increase the life of the car

This is yet another outcome that people who have been in car accidents don’t often consider. If your car has just sustained substantial damage, the replacement parts that are put into the car on repair could actually prolong the life of the car.

We’re not talking about the resale value of the car here. As a general rule, the fact that the car has been in a major accident will lower its resale value. But if you’re talking about a car that is over 10 years old, its value is close to scrap anyway. The main reason that you would keep such a car is because you can get several more years out of it, and doing so will keep your auto expense low.

If replacing significant components are reasonably likely to enable you to keep the car for several more years, then repair will become the least expensive option.
Of course, we’re not talking about $10,000 worth of repairs to a car that’s only worth $5,000. Trying to fix car under those circumstances could be counterproductive. But if the balance is close – certainly with a few hundred dollars – you may not want to be so quick to allow the insurance company to total the car.

How about you all? Have you ever faced a situation where the insurance company wanted to total your car? How did you handle it?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/madaroni/4964347820/sizes/m/in/


  1. The only “accident” I had was when the engine just broke down totally when I was moving back to France. And I decided to get it scrapped instead of fixing it as using public transport was much less hassle than a car, expensive parking & insurance.
    But you made an excellent point about replacement parts extending the life of an old car. I never thought about it !
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  2. I would be very hesitant to let an insurance company “total” my car. It may be expedient for them, but I would be the one without a car. If my car could be repaired, I would much rather have that. I want to be the one to say when my car goes to the wrecker.
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  3. Hi Kevin,
    Great post. Well written and good for folks going through this sort of thing. It happened to me about 5 years ago and I wish I had known enough to read ahead on it like this.

    I will challenge you on your assumption about car costs though. I think most people should and can buy a reasonable car for less than $5,000 and drive it while they save up for a nicer one.

    One of the best insurances I know to protect against catastrophe is to buy cheap so that if something happens it costs far less to replace.
    MITM recently posted…Success Habits – Sleep!My Profile

    • I completely agree, and that’s a course I would take as well. I’d rather have a $5,000 car than a new one. You don’t have to worry about theft, about dings and dents, or taking it to the dealer for outrageously expensive repairs. You can buy second hand parts and have it fixed by a backyard mechanic. Insurance and ad valorem taxes are minimal, and best of all, no nagging monthly payment. But that’s an article topic all by itself!
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