Understanding How a Car Is Totaled
An insurance company may determine that a car is a total loss when its value is so little that it isn’t worth repairing. This means that the cost to fix the car or the vehicle’s value, is greater than the cost of replacing the car with another one.
Generally, an insurance company will decide to declare a car totaled if the repair fees exceed the market value of the car, plus the deductible. The decision of whether to total a car or not is usually based on the insurer’s assessment. This assessment is formed through a deeper understanding of the car’s condition, age, and the parts affected by the accident that would have to be replaced to restore the vehicle to its original condition.
According to insurance experts at InsureU.ca, “The post-accident resale value is considered, even if the car was brand new before the accident. If the overall costs of repairing the car are greater than this post-accident market value, the car is totaled.”
It is important to note that the car is not automatically totaled if the costs of the repairs exceed the value of the deductible. But if the total damage, including the deductible and the repair costs, is greater than the value of the car, then the insurer is likely to decide to declare a car totaled.
Insurance Company Payment for Totaled Vehicle
When a person’s car is declared totaled, the insurance company typically pays the amount of the vehicle’s fair market value at the time of the incident, minus any deductible. Market value, or Actual Cash Value (ACV), is the amount that would be paid for a vehicle based on its current condition when sold on the open market. This does not reflect what a person might have paid for the car at a dealership.
If an individual had loan payments on the vehicle, then the insurance company could be liable to pay the balance of what is still owed on the loan, to the individual’s loan company, in addition to any amount offered to the individual to purchase a new vehicle. In this case, the insurance company will always pay the lower of the market value or the outstanding balance of the loan.
The actual payment process can vary between different insurance companies. The type of policy an individual has, who owns the car, the classification of the car by the insurance company, and the settlement option chosen—all factor into the payment.
It is important for individuals to keep track of how the insurance company paid them, and how much of the money was applied to the loan, if any. An individual should not assume that all of the payment from the insurance company goes to the loan.
Receiving Payment from a Totaled Vehicle
Once the insurance company reaches a settlement with an individual about the totaled car, the insurance company will typically send a check for the settlement amount. If a person has a loan on the car, then it’s possible that their loan company may receive the settlement check instead.
Either way, there is a form to be filled out and signed before the settlement is finalized. The form, typically referred to as the draft, summarizes all of the items considered in the settlement.
Karla Bowie, assistant director at TruthInAutoInsurance.com, shares, “The goal of the draft is to have the individual acknowledge that the settlement is a full and final satisfaction of their claim, and that the total payment includes any known and unknown damages related to the accident.”
If a person is not satisfied with the amount of the insurance company’s offer, they have the right to negotiate with the insurer before signing the draft. Once signed, the individual will forfeit any further payment from the insurer related to the claim.
Buy-Back Agreement for Totaled Car
When an individual desires to keep their car, even though the insurance company has declared it totaled, they have the right to do so. In this case, the insurance company may enter into a buy-back agreement with the individual.
In this situation, the individual will receive the cash value of their totaled car less the deductible. The insurance company will then become the owner of the car and will have the right to fix it and resell it to the open market.
It is important to note that the buy-back agreement is generally the same process as a typical “totaled” claim. The individual will sign a draft, indicating that they have been paid in full for the damages for the totaled car. It is important for them to review this draft thoroughly, or to seek advice from an expert.
Recovery After a Totaled Vehicle
Once the insurance company has issued payment for the totaled vehicle, the individual has the responsibility to repair any errors with the credit report. The individual can expect to see a decrease in their credit score—but its impact is not significant enough to ruin credit record permanently.
If the individual had insurance on their car prior to the accident, they can use that money to purchase a new vehicle. But if they do not have liability insurance on the car, they will have to pay out of pocket.
When it comes to replacing a totaled car, another option is to buy a used car. A reputable car dealership typically offers financing and warranties on their vehicles, meaning that an individual can purchase a car and make payments up to 5-7 years.
Legal Recourse for Insurance Companies Totaling Cars
An individual can pursue legal action if the insurance company has refused to pay for the damages or undervalued their car. Approximately half of the states recognize the “Collision Appraisal Clause,” which requires insurers to pay the individual the difference between the settlement offered and the fair value of the car.
It is important to note that laws vary from state to state, and individual cases vary, as well. Individuals should seek legal advice if they feel like the settlement amount is inadequate for their damages. InsuraU.ca recommends seeking out a lawyer specializing in insurance disputes.
Sales Tax and Totaled Vehicle Replacement
When a person purchases a new car with the settlement money they received from the insurance company, they typically have to pay sales taxes on the car. The amount due for sales taxes to be paid will be the same as if a person purchased the car using their own funds or a loan. Therefore, individuals should keep the sales taxes in mind when it comes to their budget for replacing a totaled car.
Money Value Disbursed for Repairs Near Totaled Vehicle Amount
In some cases, a person’s car may not be totaled but they still received money to put towards repairs. Since the money was disbursed as a totaled vehicle amount, the insurer may ask the person to get a new car and return the money if they decide to repair their car instead.
In this case, the insurer may apply a rate reduction to the reimbursement, meaning the amount of money paid back will be less than the original settlement. The insurer may also, in some cases, offset deductibles and other applicable claims, depending on the type of policy, the insurer, and the individual’s claim history. Individuals should seek advice from an expert or lawyer if they feel like their rights are being violated.
Additional Coverage for Totaled Vehicle
When an individual has an insurance policy for a totaled vehicle, they may be entitled to additional coverage. If a person was underinsured at the time of the claim, the insurer may provide additional coverage, thereby covering the full extent of the person’s damages.
This additional coverage could involve covering any additional expenses or filing a gap claim to make up for any difference between the amount of money paid out by the insurer and the actual costs associated with the accident.
An individual should review their policy carefully and reach out to their insurance agent if they believe they may be entitled to additional coverage.
Insurance Company Requesting Owner to Fix Totaled Vehicle
In some cases, an insurance company may request that a person fix the totaled vehicle instead of buying a new one. The company may consider the total cost to repair the car less than the total cost to replace the car with a new one.
In this situation, the insurance company will still have to replace the vehicle, but for a lesser amount than the cost of buying a whole new car. An individual should contact their insurer to understand how much money they are likely to be paid out for the repair and how much money they will have to pay out of pocket.
Negotiations with Insurance Company on Totaled Vehicle
When a car is declared a total loss by an insurance company, people may be able to negotiate with the insurer if they feel like the settlement amount is not adequate to cover the cost of replacing the car.
An individual can use analytical tools to compare the actual cash value of their vehicle to the sales prices of similar vehicles on the market. This will help them figure out what their car is worth and the potential settlement amount they can expect from the insurance company.
If the individual feels like the insurance company has not met their demands, they can opt for an independent appraisal. Independent appraisers are experts in the industry who can accurately arrive at the actual cash value of a vehicle.
If the person’s car is declared totaled, individuals should keep in mind that the insurance company is responsible for the cost of the assessment or appraisal. In any case, the person should understand their rights and make sure they are adequately compensated for their losses.
