What Happens When Insurance Company Totals Out Your Car?
When you purchase a car insurance policy, you typically select a coverage level to provide financial protection in the event of an accident or other mishap. But what happens when your car is damaged beyond repair, known as a total loss?
At its most basic, a total loss is any situation where the cost to repair a vehicle exceeds the amount of the vehicle’s current market value. This figure is established by a combination of factors, such as the make, model, mileage and condition of the car, as well as repair costs. Thus, if the market value of a car deemed a total loss is $5,000 but it will cost $7,000 to repair the vehicle, the car is considered a total loss.
When describing total loss settlements, there are typically two phrases used: “actual cash value” and “replacement cost value”. An insured’s actual cash value settlement is the pre-accident market value of their car minus any applicable deductible. Replacement cost value is the actual cash value plus additional funds towards a similar replacement vehicle, up to the policy’s stated limits. Depending on an individual’s insurance policy, their coverage may encompass both, or only one of the two.
The total loss process is typically a straightforward procedure for policyholders. An insurance company will generally inspect the vehicle and arrange for an independent appraiser and sometimes an attorney. From there, the insurer ensures that all towing, storage, and salvage costs related to the total loss are paid. The appraiser then determines the market value of the vehicle, deducts the applicable deductible, and reports their findings to the insurance company.
Following the appraisal, the insurer will enter into settlement negotiations with the policyholder and come to an agreed upon amount of reimbursement. After the negotiated amount is mutually approved, the insurance company will typically release a check to the policyholder. If the policyholder has the right to choose a settlement option as part of their policy, they may select either actual cash value or replacement cost.
In the end, the total loss process can be a frustrating one. In addition to the emotional cost of losing a vehicle, there can be procedural issues to contend with. From negotiating a fair settlement to arranging for a rental car, policyholders should be sure to follow their insurer’s instructions for the smoothest transition.
Car Market Value
When a vehicle is purchased, it is done so at a certain market value. Factors like age, make and model all go into the end price. But, over time, the car depreciates as it is driven, experienced normal wear and tear, or other factors come into play. This depreciation is something that affects all cars and is taken into consideration by an insurance company when a car is totaled out.
The amount a car has depreciated will be taken into consideration when the insurance company assigns an actual cash value to the vehicle. After an inspection, they will investigate the current market value of the car, look at the condition it was in when the incident occurred, and the historical depreciation of the car. This allows them to make an educated determination of its actual cash value, and any amount above the deductible will be paid to the policyholder.
These calculations can be complicated and tedious, but are necessary for the policyholder to be duly compensated for the total loss. This can be an emotionally draining process, and is often hard to part with something many people look at as an investment. That’s why it is important to keep on top of its market value, keep it properly maintained, and make sure to get the proper coverage when selecting an insurance policy.
Repair or Replace?
When a car is totaled out, it is generally considered unrepairable. This is the reason the insurance company has used an appraiser to determine its actual cash value at the time of the incident. A key factor influencing this figure is the cost to repair the vehicle as any cost above the market value sends the car into total loss territory.
The costs to repair a vehicle with major damage can vary greatly. In some situations, it may just be a matter of changing a few parts whereas in more extreme cases, specialists may be required. Additionally, the prices of these parts can add up quickly and be more expensive than expected. This only adds to the cost of a typical repair bill and, to meet the market value of the car, these costs may not be covered by the insurance policy on their own.
One of the ultimate decisions of a totaled car is whether to repair or replace it. Repair could be more economical, but may not be possible depending on the extent of the damage. If a policyholder chooses to replace their car with a similar model, they will need to cover costs above the policy’s settlement amount and may have to finance the remaining balance. This can be a difficult decision, so many people will defer to their insurer to get a better understanding of their coverage.
Working with an Insurance Company
When an insurance settlement involves a totaled car, the process can be lengthy. Many of the details are handled by the adjuster and appraiser, but ensuring a policyholder’s rights can require some effort on their part as well. To ensure a fair settlement, it is best to stay vigilant about reviewing paperwork and reading the fine print.
Additionally, policyholders should be sure to take full advantage of the services their insurance company provides. Many policies include additional coverage for towing, car rental, and lodging costs. Taking the time to understand and use these services can reduce additional expenses.
When a vehicle is totaled, and an insurance settlement is offered, negotiating a better value can be an option. However, policyholders should remember there are limits to these negotiations. While an insurer’s initial offer may be too low, to find an agreeable amount, a policyholder should have a good understanding of the current market value and the associated costs to repair the car. With the right preparation, an insured can maximize their policy and avoid any payment shortfalls.
Purchasing a new car after an accident can bring a host of potential issues, from loans to financing to replacement costs. When a car is totaled, the associated replacement costs can be a strain on a person’s budget. Fortunately, many insurance companies provide services and policies to help with these costs.
Some policies may include additional coverage for replacements, such as gap coverage or a new car replacement guarantee. Gap coverage can protect a policyholder from any financial discrepancies in the event of a total loss. For example, if the policyholder owes more than the actual cash value of the vehicle for its replacement, this coverage will help make up that difference.
Similar to gap coverage is new car replacement guarantee. This coverage allows a policyholder to receive a brand-new car if their totaled car was under a certain age, typically one or two years, and had low mileage when the incident occurred. It should be noted there are limits to this coverage, such as settlement payout limits, but they can provide some peace of mind.
The Road Ahead
The total loss of a car is a complicated process, both emotionally and procedurally. It is important for a policyholder to understand the coverage their insurance offers and how to apply it to their financial situation. This can be done by staying knowledgeable about market values, researching services and coverage, working with an insurer to find the best settlement option, and taking advantage of specialized coverage.
Many resources exist to help guide policyholders through the process. From impartial advice to in-person assistance, they can provide the help needed to understand policy coverage and negotiate a fair total loss settlement. Taking the time to use these services and have a well-informed plan could make all the difference in the long run.
