When your insurance company deems a car irreparable after an accident or theft, the process of a total loss is instigated. When this occurs, the insurance company cuts you a check for what the car was worth before the damages. The catch is that you won’t actually be compensated for the damages to your car, but for its fair market value, which can be significantly less. Even if the damages to your car exceed the fair market value, the insurance company won’t pay you the difference.
The word ‘total loss’ might conjure images of a smoking, mangled wreck of a car, but that’s not always the case. According to insurance expert Emily Selleck, the definition of a total loss is far more complex than it first appears. “Most insurance companies use a formula to determine whether a claim comes out to a total loss. The formula is usually dependent upon the cost of repair, parts, labor, and fair market value.” Even if cost of repair is low and the car would be easily salvageable, if the market value is too low, the formula will produce a total loss.
The total loss process is similar across insurance companies. After an initial claim, the policyholder is usually contacted by the insurance company, who will assign a claims handler to assess the cost of the damage. If the total cost of damage exceeds the fair market value, the claim will be deemed a total loss. Even if the claim is deemed a total loss, the policyholder may have already received compensation from the claim, depending on the policy. The remainder of the claim process involves the insurance company determining the fair market value of the car, cutting an appropriate check for that value, and drafting a salvage title to the policyholder.
Finding Replacement for Your Car
Once the policyholder is compensated for the total loss and is in possession of the salvage title, they are no longer responsible for the car and have the legal authority to dispose of it. Disposing of a totaled car requires a lot of research. Despite being legally required, not every scrapyard or junkyard will take a totaled car. Policyholders should always consult third-party pricing guides and research the market values of comparable cars when shopping for car replacement, as the fair market value provided by the insurance company may be an underestimate.
Total loss claims can be tricky to navigate and involve a lot of detailed paperwork. According to insurance lawyer Luis Mariner, certain measures can be taken to ensure a smooth claim process. “The first step is to access repair estimates and never settle for an estimate from one shop. The best approach is to take your car to several garages and get multiple estimates from different mechanics. This will result in comparative quotes and provide you with a better understanding of your car’s value.”
Furthermore, damaged vehicles are eligible for multiple claims, meaning some parts of the car can be claimed separately. For instance, in the case of the total-loss car, you can claim for the warranty for further damages. and you may be eligible to multiple claims. As a result, policyholders can maximize their reimbursement if they carefully go through their policy.
The Role of the Insurance Adjuster
The adjuster plays an important role in total-loss claims. An adjuster is a professional trained to verify a claim, assess damages, and draft a final settlement offer. In the case of a total-loss vehicle, they will provide a fair market value based on comparable vehicles. As a policyholder, you are entitled to question the final settlement offer if you suspect the estimate provided by the adjuster to be an underestimation of your vehicle’s such as age, condition, or mileage warrant a higher reimbursement.
Your Rights in a Total-Loss Claim
Despite not being able to receive more than the car’s fair market value, as a policyholder, you are still entitled to certain rights. Chief among them is the right to a detailed explanation of the total-loss claim process and the reimbursement schedule. Additionally, if the accident was not your fault and the other party is responsible for the damages, their insurance company is obligated to cover the cost of repairs and the fair market value of your car. In such a case, you are not obligated to accept the settlement offered by your insurance company.
Tips for Avoiding a Total-Loss Claim
The best strategy for avoiding a total-loss claim starts with prevention. As soon as you get a new car, make sure to familiarize yourself with the proper procedure for filing a claim and make sure to maintain an accurate record of all repairs, so if the need arises, you can provide your insurance company with an accurate home of repairs and routine maintenance.
When driving, always follow laws and regulations. Always update your insurance policies for new vehicles and to make sure you are properly insured. You should also get yourself acquainted with your state’s Salvage Title laws and regulations, so if the need arises, you can make an educated decision on how to proceed with a totaled vehicle.
Personal Financial Implications of a Total-Loss Claim
The financial implications of a total-loss claim can vary dramatically depending on the policyholder’s coverage. Generally speaking, full coverage policies provided by the insurance company will pay for the full value of the car up to its fair market value, but only if the vehicle is totaled. Compulsory coverage, such as liability or uninsured motorist coverage, typically won’t cover totaled vehicles.
Downgrading from full coverage to liability coverage can save you money in the short term, but the lack of adequate coverage can prove costly in the case of a catastrophic accident. Seeking out comprehensive and affordable coverage is always in the policyholder’s best interest.
Negotiating a Reasonable Settlement
Unless you are 100-percent sure that the value of your car is significantly more than the fair market value provided by the insurance company, it’s often a good idea to negotiate a reasonable settlement. Most insurance companies are willing to remove certain fees or reimbursements in order to reach a compromise with their policyholders. It’s a good idea to familiarize yourself with the salvage auction market and bring a proof-of-value document, such as pricing guide, to the negotiation table.
If an agreement cannot be reached between the policyholder and the insurance company, then the policyholder can take the dispute to a third-party appraisal service or small-claims court. Before signing the waiver or settlement agreement, make sure to read the document carefully and ensure that the agreement clearly outlines your rights.
Recovery After a Total-Loss Claim
After a total-loss claim, you’ll need to shake off any residual feelings of shock and frustration, if you can. While it can be hard to part with a beloved vehicle, the best approach is to start the replacement process as soon as possible. Start by talking with your insurance agent, who may be able to recommend affordable vehicles that fall into the same price range as your totaled car.
If you’re in possession of the salvage title, you may be tempted to fix up the car yourself. Take into account that fixing up a totaled vehicle without having clear understanding of the state of the car’s damages can be costlier than buying a brand-new car.
If the total-loss claim was covered by comprehensive or collision insurance, any budgeted money allocated to the car can be put towards a newer and safer vehicle. This can serve as a great opportunity to upgrade to a bigger, better car. If the total-loss claim was caused due to an accident, you may be able to switch carriers for a better rate.
Financing a New Car after a Total-Loss Claim
Auto financing often poses an obstacle to policyholders who have just gone through a total-loss claim. It’s important to find a car financing service that can accommodate your situation. Start by getting a few auto loan quotes from banks and credit unions and compare the interest rates being offered.
When applying for financing, be sure to focus on the loan terms, conditions, and interest rate being offered. Online financing services offer the most convenient way to access car loans and find the best deals.
In addition to auto loans, there are a few financing options tailored specifically to individuals who have gone through a total-loss claim. The most common of these are ‘gap’ loans, which are designed to fill the difference between the insurance settlement and the actual loan amount. Gap loans are usually available through a dealership, as long as you can prove that the total-loss claim was caused by an accident or a theft.
Getting Funds from a Total-Loss Claim
Once your claim is finalized, the only thing left to do is collect your funds. Depending on the insurance company, you’ll either receive your reimbursement via check, money order, or direct deposit. If you haven’t been compensated for damages yet, you should contact your insurance company to see what options are available.
You should be aware that your car’s total-loss claim may have an effect on your insurance rates and premiums. Insurance companies are likely to raise rates in case of accident claims, so it always pays to shop around and compare rates from different insurance companies. This way, you can make sure that you’re getting the best coverage for the best value.
Summary of a Total-Loss Claim
Going through a total-loss claim can be a challenging process, but if you’re familiar with the basic steps associated with total-loss claims, it can be much easier to navigate. It’s important to be aware of the personal financial implications of a total-loss claim, such as payment for the diminished value of the vehicle, loan repayment, and increased insurance premiums. Furthermore, if an accident was involved, you may be able to switch carriers for a better rate.
For the smoothest claim experience, it’s important to familiarize yourself with the steps involved, access multiple repair estimates, and get your car appraised by a professional. You should verify that the total-loss claim is covered by your policy and research the current market value of comparable vehicles. If a dispute arises, don’t be afraid to take it to small-claims court or consult a lawyer. Organizing your documents and preparing a dossier will help you defend your rights in a total-loss claim.
