Car written off? This is what happens next

Being involved in a car accident can be stressful, particularly if the vehicle is classified as a write-off. In insurance terms, this means the insurer has determined that repairs are either not financially viable or not safe for the car to return to the road.

“It is a frustrating experience, especially if the car doesn’t look that badly damaged to your eyes,” says car insurance provider Naked in a press release.

How insurers decide if a car is a write-off

An insurer may decide to write your vehicle off after a major accident, or, less commonly, if it is damaged by fire or severe weather, or recovered in poor condition after being stolen.

Naked co-founder Ernest North says: “When you submit a claim, the insurer will appoint an assessor to inspect the vehicle and calculate the cost of repair. If the repair costs are high compared to the car’s value, the insurer may decide it is a total loss rather than something that should be repaired.”

While thresholds can differ between insurers, a common rule of thumb is that if repairs are likely to exceed 50% to 75% of the vehicle’s value, the car is usually written off.

“In simple terms, the insurer is weighing up what it would cost to repair the car properly and safely, against what the car is worth. If the numbers don’t make sense, or there are safety concerns, it’s more likely to be written off.”

According to Naked, key factors that influence the decision include:

• Damage severity: Bad structural damage to the frame of the car might make it too expensive or even impossible to repair safely.
• Vehicle age and condition: It does not make sense to pay more to fix the car if repairs will be more than its book value.
• Parts availability: Imported or luxury vehicles can be expensive and slow to fix.

What happens when a car is written off

If a car is written off, the insurer will provide a payout instead of covering the cost of repairs.

The payout is based on the terms of the policy, typically the insured or market value of the vehicle minus the excess. If the vehicle is still under finance, the payout is used to settle the outstanding balance owed to the bank.

“Many people only realise after the fact that the settlement is first used to cover the outstanding finance,” says North. “If there’s a shortfall — meaning you owe more than the insurer pays out — you’re responsible for that gap unless you have shortfall cover.”

What insurers do with scrapped vehicles

Once the claim is settled, the insurer usually becomes the owner of the damaged vehicle. In most cases, the insurer takes ownership of a damaged car and sells it for salvage or scrap.

Some insurers may allow the policyholder to buy back the damaged vehicle. However, if the vehicle is still under finance, the bank must approve the arrangement.

“In this case, the insurer deducts the car’s salvage value from your payout, and you will take responsibility for repairs, roadworthy tests and re-registration.”

Salvage titles explained

If a car is written off, it will carry a salvage record, which can affect future insurance, financing and resale.

“A salvage title is essentially a permanent marker on the vehicle’s history,” says North. “Even if the car is repaired and looks perfect, the record can still influence what you can do with it and how easily you can insure or sell it later.”

Write-off codes include:

• Code 2: Still considered a used car that can be repaired and registered normally.
• Code 3: Severe structural damage, but it can be repaired. It must be rebuilt and re-registered as rebuilt.
• Code 3A: Beyond repair and generally stripped for parts.
• Code 4: Completely destroyed and must be scrapped.

Risks of buying back a written-off car

If the vehicle is bought back, repairs may prove difficult or costly to complete.

“Even if you can get the car fixed, it might have hidden damage that will become obvious later or it might not be completely safe to drive,” says North.

A professional assessment of the vehicle’s structure, mechanical components and safety systems is advisable. Some insurers may decline cover for previously written-off vehicles or impose higher premiums. Resale value is typically reduced. The vehicle will also require a new roadworthiness certificate and must pass the necessary safety inspections before it can be re-registered.

As such, it may only be a practical option if the vehicle was written off primarily due to its age and the repair costs can be covered, or if it is a collectable with sufficient value to justify restoration.