Being involved in a car accident is one of the most unexpected things that can happen to anyone’s day.
One minute, you’re cruising along, sipping your coffee, and jamming out to your favourite song, and then BAM! – your car falls victim to the merciless laws of physics, and you now have a totaled car in Canada.
If your car is damaged badly enough, the insurance company could declare it as a “total loss,” which means that the market value of the car is less than the cost of fixing the car.
In addition to any personal damage that you may sustain, a totaled car can set you back financially and leave you without transportation. Below, I’ll explain what to do after you’ve totaled your car in Canada, and how to financially protect yourself.
Shortly after I graduated from university, I had the misfortune of being involved in a fairly bad car accident. Thankfully, I escaped with just a few bruises, cuts, and a really sore chest (from the seatbelt that most likely saved my life). My car, on the other hand, was a different story.
The car was not even close to being driveable afterwards. I knew that the insurance company was likely going to declare the car a “total loss” due to the extent of the damage.
Thankfully, it was a used car that I had paid for with cash. So, my finances weren’t affected too much. However, I did have to take several days off of work and spend time trying to find a new ride.
Normally, after you get into an accident, your insurance company will assess the damage to the vehicle and estimate the total cost of repairing it. They can usually get this by sending detailed photos and videos to local body and repair shops willing to provide a quote to fix the vehicle.
Next, the insurance company will calculate the total salvage value of the vehicle. In other words, they want to see how much the car would be worth if it were just dropped off at a junkyard.
Finally, the insurance company will calculate the current market value of the vehicle (prior to the accident, of course), based on factors like:
- The year, make, and model of the vehicle
- How many kilometres or operating hours were on the vehicle
- The Kelly Blue Book value of the car, based on its condition
- The adjusted price to fit the current used car market in your region
Using all of this data, the insurance company will then decide whether they’ll pay you a sum to cover the vehicle’s repairs or whether they’ll write it off as a total loss and send you a cheque for the current market value of the vehicle.
A vehicle is determined to be a total loss if the cost of repairs is greater than the market value of the car minus the salvage value of the car.
For example, when I got in my accident, the insurance company estimated the salvage value of the vehicle at $900 and the cost of repairs at around $6,000. At that time, the value of my vehicle was just over $4,500.
In other words, it was too expensive to bother fixing my car, as repairs would cost more than the cost of buying a replacement vehicle of the same make, model, year, and mileage. So, it was declared a total loss, and the insurance agency issued me a cheque for $4,500 (the fair market value of my vehicle).
Understanding the Total Loss Threshold
Whether the vehicle is determined a total loss or not also depends on the total loss threshold in the province you’re in. For example, if my $9,000 totaled car costs $8,000 to repair, the car may still be declared a total loss, even though the repairs are technically less than the fair market value of my vehicle.
This is because insurance companies have a certain threshold, which allows them to write the car off as a total loss if the cost of repairs is close to the market value of the vehicle minus the salvage value.
Each province has its own laws regarding the total loss threshold that insurance companies can impose. However, the average total loss threshold in Canada is between 70% and 80%.
This means that if repair costs come within 70-80% of the market value of the vehicle (minus the salvage value), it can be written off as a total loss.
How A Totaled Car Can Affect Your Finances
If you have full coverage insurance, gap insurance, and an allowance for a temporary rental vehicle, then you’ll automatically be protected against some of the pitfalls of a severe auto accident.
Having your vehicle declared as a total loss can still affect your finances, though, even if you have the best insurance coverage that money can buy. Some of the most common ways that your accident can affect your finances include:
- Medical fees and/or missed work due to injuries
- Vehicle towing fees
- Being left without transportation
- Money that you might still owe on the vehicle
- The time, effort, and money required to purchase a new car
Thanks to our universal healthcare system, most Canadians won’t have to pay for an ambulance ride or a hospital visit following an accident. However, if you choose to visit a private practitioner for post-accident care, then you may have to pay for your visits out-of-pocket.
Most people who are involved in an accident severe enough to total their vehicle probably aren’t going to be able to work for at least a day or two afterwards. Even if you escape with cuts and bruises, you’ll still be very sore and mentally exhausted from the massive adrenaline rush your body experienced in the accident.
If you sustain a more severe injury, then you could be out of work for weeks. While EI is an option, the maximum payout you may receive for EI is 55% of your earnings (up to $638 per week). This may leave you in a tough spot, unable to keep up with bills and responsibilities.
- Read More: How To File Your EI Report Online
After totaling your vehicle, you’ll need to have it towed off of the main roadway. You’ll usually be able to tow the vehicle to your home or a local repair shop.
Unfortunately, this is going to cost you money unless you have a membership with a roadside assistance company or insurance company that offers complimentary towing.
If you live in a larger city like Toronto, Montreal, or Vancouver, then you’ll be able to take advantage of one of Canada’s excellent public transportation services. However, if you live outside of the city or in a more rural area, then you may be left without transportation.
Not having a vehicle means that you may have to pay for a temporary rental, Uber rides, or pay your co-worker to pick you up.
If you don’t have gap insurance (which covers the difference you owe on your car after receiving your settlement), then you may still be required to make payments on your auto loan or lease term.
This is often common when it comes to upside-down car loans, where the final amount (after interest) that you owe the lender is worth more than the vehicle itself.
For example, let’s just say that my car was declared a total loss after an accident, and I received a $20,000 payout. Now, let’s say that I still owe $5,000 on my auto loan.
At this point, I’ll have two options:
- Pay off my prior loan and use the remaining $15,000 to purchase a vehicle of lesser value
- Use all of the $20,000 to purchase a new vehicle and continue making payments on the $5,000 loan
Another thing to keep in mind is that if you still have an open auto loan, it’s unlikely that you’ll receive financing for a new vehicle (unless you’re earning enough to easily cover both auto loans).
This means that option one is probably going to be your best option unless you’re willing to purchase your next vehicle upfront in cash.
Last but not least, you also have to consider that shopping for a new car isn’t easy. Don’t get me wrong, it’s certainly fun. However, you’ll likely spend several days researching the vehicle you want to buy and trying to find the best deal on it. Then, you’ll likely have to spend several hours finalizing the purchase of the vehicle and adding it to your insurance.
All of this requires time, which you’ll likely have to take away from work and other responsibilities.
If you’re involved in a total-loss accident, your insurer is going to mark you as a higher-risk subscriber, even if you weren’t at fault. This means that when you renew your insurance policy, you’ll likely be hit with higher premiums.
Since the accident is on your record, other insurance companies may also hold it against you, which means that you might not be able to save by switching to another insurer.
Getting into a major car accident is nothing, if not a complete shock to your system. It can leave you shaky, disoriented, confused, and stressed out. Here are the steps you should take to deal with a totaled car in Canada:
- Contact your insurance company
- Research the market value of your car
- Keep track of all accident-related expenses
- Negotiate an insurance settlement
- Take advantage of gap insurance to resolve remaining auto debt
Below, I’ll briefly go over each of these steps so you know exactly what to do.
After receiving medical attention (if needed), the first thing you should do is contact your insurance company. Inform them that you were just involved in a major accident and ask them which steps you should take next. Your agent should provide you with clear instructions to make sure that all of your bases are covered.
Once the police officer files the accident claim and determines which driver was at fault in the accident, the report will be forwarded to both you and the other driver’s insurance companies. From here, you should be contacted by an adjuster who will work with you to determine the value of your vehicle and the estimated repair costs.
To get the best settlement, you may need to negotiate with the insurance adjuster. The best way to increase your settlement value is to arm yourself with data, such as:
- The market value of your car
- The current used car market (are vehicles more or less expensive in your area?)
- How hard will it be to find an exact replacement vehicle (is your car a hard-to-find model?)
The best place to research this is on the Kelly Blue Book website. Here, you can enter your car’s information to receive quotes on the average trade-in and sale values in your local region.
It’s a good idea to keep all of your receipts and records for any accident-related expenses. These can all help you negotiate a better settlement with the insurance company and may also provide valuable evidence if you decide to pursue a lawsuit later down the line.
Usually, the insurance company should provide a settlement quote within a few days of receiving the accident report. If the offer is fair, you can take the settlement amount. However, if you believe that the offer is unfair, you can negotiate the settlement amount with the adjuster and see if they’re willing to increase your payout.
If you totaled a leased or financed vehicle that you still owe money on, then you’ll still owe the amount to the creditor. Paying for a vehicle that you can no longer drive may not seem fair, but it is your obligation nonetheless.
The best way to protect yourself against this is by adding gap insurance coverage to your auto policy. Some lenders may have also helped you purchase third-party gap insurance when you purchased the car.
This type of coverage is designed to help cover the cost of the extra amount that you owe on your auto loan or lease term after receiving an insurance settlement. Gap insurance does have a deductible, though, so you might have to pay part of the amount out-of-pocket.
To wrap everything up, here are some quick answers to a few other commonly asked questions about how to deal with a totaled car in Canada.
Yes! Although insurance adjusters are notoriously stubborn, there’s often some wiggle room to negotiate a higher settlement. You’ll have to exercise your negotiating skills and be willing to spend some extra time going back and forth, but it could help you get hundreds or even thousands of dollars more.
Gap insurance is a special insurance add-on that helps drivers cover the remaining cost of their auto loan or auto lease term in the event that their vehicle is declared a total loss.
In an accident, the driver at fault is determined by the police officers. The responding officers will interview each driver about the incident, and may also ask bystanders and witnesses for input if there is a conflict.
If your accident prevents you from being able to work, then you may be eligible to receive unemployment insurance to cover up to 55% of the amount you were previously earning (up to $638 per week). These benefits are typically available for up to 15 weeks after the incident, which gives you time to recover.
If you total a leased car, you’re still required to complete payments based on the lease term you signed. However, most auto leases require the borrower to sign up for gap insurance to help protect them if the car is involved in an accident prior to completion of the lease term.
Totaling a car is never fun. However, you can protect yourself with gap insurance and some basic negotiation skills that you can use to negotiate a higher settlement with the insurance adjuster. Ultimately, you should be grateful to have made it out alive. Vehicles can always be replaced, while your body cannot.
One of the best ways to fund your new vehicle is to sign up for a side hustle as a courier or a rideshare driver. Keep on reading to see my list of the best paid driving apps in Canada!