It feels like risk mitigation to me. With all the interconnected aspects of a car the repair might be reasonably priced or might not. If the insurance company j

It feels like risk mitigation to me. With all the interconnected aspects of a car the repair might be reasonably priced or might not. If the insurance company just "pays for the repair" then they've committed to either price, or even if they have a limit then they might reach the limit and still need to replace the car on top of it. Or the car might get repaired but have some issues, and there's no good way to just say "this car isn't as good as before the accident, but here's $1000 to make you whole". Instead they declare the car totaled and recoup what they can on the other end. If you want to actually _keep_ your totaled car you'll have to pay for it, because it _does_ have value. I had a car "totaled" when it was rear-ended, but it was still drivable and I would have liked to keep it, do some minimal repairs, and just accepted the wonky back end. But to keep it I would have received something $3,000 less on a $10,000 car and it didn't seem worth it. I don't know if the car was chopped up and helped make other cars whole, or vice versa. Some part of it ended up on a discount used car lot. And that's probably fine. Cars are kind of fungible and declaring a car "totaled" is just a way to take advantage of that and seems like a legitimate efficient-market approach.