OK minor accident as we avoided collision with on-coming guy passing in no-passing zone. Guy long-gone, never stopped, no witnesses, so our insurance takes the hit. We had to avoid collision by veering off road and blew out 2 tires and airbags deployed and cracked windshield.

We paid to fix tires and glass, which was less than our deductible, but now the price of airbags is more than car is worth. It's a 100% untouched vehicle otherwise, but high miles and older. No rust no mechanical problems at all.

Question is, is there some rule/law that says we/insurance company have to replace the airbags? Why can't we simply now declare this is a vehicle without airbags (surely pay a higher premium) there are non-airbags cars still on the road from before airbags were invented. They aren't necessary to drive the car. Or does the 'make' of the car necessitate airbags? (I also hear that lots of times airbags are stolen and you never know it until they don't deploy, so plenty of cars have no airbags and are not 'totalled')
problem is, the insurance company says they will pay value of our car to 'total' it less the deductible and then what we already paid to fix the car also comes out (as not being applied to deductible) and then we end up owing them to 'buy' the car back. How can this be?

Safety equipment which is installed as a result of new regulations is mandatory. Regulations generally exempt older vehicles. But to disable or disconnect the air bag in a car which was manufactured with it, would generally be contrary to federal regulations.

Under certain circumstances an air bag on/off switch can be installed. But it sounds like you would not meet the requirements.

If you wish to pursue having it legally deactivated, check the following link. It contains more information and a link to the request form.

If you choose to simply ignore it, your insurance company could probably cancel your insurance on the grounds that it did not meet safety standards.

Safercar.gov

You may keep your car but normaly the settlement will be less than the totaled amount.

But this is the issue with low value cars, often what you get paid is far less than the value of the car if it is totaled.

Most times insurance companies declare a car totaled once the airbags deploy due to the expense in having them repaired/replaced in a addition to the added liability that they may no longer function properly after deploying once.

If they say the car is worth, let's say $2000 but it's going to cost $3000 for all necessary repairs, then they decide to total the car. You can either take the $2000 and put towards a new car or keep the old car but then you're still going to have to pay for the $3000 in repairs. So bottom line is this: the insurance company isn't going to pay to have the repairs done if they cost more than the car is worth. Most people take the check and get another car. I've only seen in my experience a couple times where someone kept the old car and made the repairs. Reasons for this option were, that even with the settlement check to use as a downpayment, maybe they didn't have the credit to finance another car and repairing the old car was the only option. (think: $3K in repairs VS. a $15K car loan)

One thing that you also have to keep in mind is that once the insurance company has declared the vehicle a "total loss", they will not provide certain coverages on it until the repairs have been made. (This could vary by state and based on which coverages you want.) If you wanted to add back Collision coverage, you will have to provide documention from a repair facility and in most cases, take the car back to the insurance agent so they can witness that the car has been fixed.

I'll add one last thing: if you decide to keep the car and repair it, plan on being married to that car forever because it may be VERY difficult to sell/trade it once someone finds out that it was once declared a total loss (thanks to carfax).