How To Buy A Totaled Car From Insurance Company – When your car is totaled in an accident, your insurance company pays you for the value of the totaled car – or, more accurately, it pays you what it claims the value is.

Almost anyone who has been through this process can attest that the most frustrating part is accepting the auto insurance company’s assessment of your car’s value. Almost always, the estimate comes in lower than you expected, and the amount you receive isn’t enough to buy an apples-to-apples replacement. Sometimes it’s not even enough to cover what they still owe on the car.

How To Buy A Totaled Car From Insurance Company

How To Buy A Totaled Car From Insurance Company

Compounding the problem is the fact that most customers are not familiar with the methodology used by insurance companies to value cars. Auto insurers’ valuation methods are esoteric, dependent on abstract data, the specifics of which they are careful not to disclose. That makes it difficult for a consumer to challenge a low ball offer from a car insurance company.

How To Cancel The Registration On A Totaled Car In California

Knowing the basics of how insurance companies value cars and the terminology they use can put you in a stronger position from which to negotiate.

When you report a car accident to your insurance company, the company sends an adjuster to assess the damage. The first step in the adjustment process is deciding whether to classify the vehicle as totaled.

An insurance company may consider the car totaled, even if it can be repaired. Generally, the company decides to total a car when the cost to repair it exceeds a certain percentage of the value, anywhere from 51% to 80%, according to Insure.com. Some states mandate or provide guidelines for this percentage: Alabama, for example, sets it at 75%.

Assuming the car is totaled, the adjuster then conducts an appraisal and assigns a value to the car. The damage from the accident is not included in the valuation. What the adjuster is trying to estimate is what a reasonable cash offer for the bike would have been before the accident took place.

Is My Vehicle A Total Loss?

Next, the insurance company calls in a third-party appraiser to issue his own estimate on the car. This is done to minimize any appearance of impropriety or negotiation and subject the vehicle to a different valuation methodology. The company maintains its own assessment and that of the third party when making its offer to you.

It may be possible to hire your own appraiser if you disagree with your insurance company’s valuation, although you may need your insurer’s approval to do so.

There is a big difference between the insurance value of your car as determined by the insurance company and the amount it actually costs to buy a suitable replacement. The insurance company bases its offer on actual cash value (ACV). This is the amount the company determines someone would reasonably pay for the car, assuming the accident had not occurred.

How To Buy A Totaled Car From Insurance Company

Actual cash value usually takes into account factors including depreciation, wear and tear, mechanical issues, cosmetic blemishes, and supply and demand in your local area. For example, State Farm explicitly refers to its car insurance value calculator: “We base your car’s value on its year, make, model, mileage, general condition, and major options — minus your deductible and applicable state taxes and fees.”

I Have A Totaled Vehicle. Now What?

Before you buy gap insurance, take time to compare premiums and costs from the best car insurance companies to make sure you get a reasonable deal.

Even if you bought a new car and only drove it for a year before the accident, its ACV will be significantly lower than what you paid for it. Just driving a new car off the lot depreciates it by as much as 9% to 11%, and depreciation accelerates to 20% at the end of the first year.

Indeed, the insurance company sues you for everything from the miles on the odometer to the soda stains on the upholstery that have built up that year.

The amount of the ACV offer will inevitably be less than the replacement cost – the amount it would cost you to buy a new car like the one that was wrecked. Unless you are willing to supplement the insurance payment with your own funds, your next car will be a step down from your old one.

What Is Total Loss Car Insurance?

This type of policy uses the same methodology to total a car, but then it pays you the current market rate for a new car in the same class as your wrecked car.

If you total your car soon after buying it, you could end up with negative equity in the car, depending on your financing deal. That is, the insurance payment can be less if you owe on the car.

The situation can get worse if the car is relatively new. The amount that the insurance company offers for the totaled car may not be enough to even cover what is owed on the wrecked car.

How To Buy A Totaled Car From Insurance Company

This can happen if you break down shortly after buying a new car. A new car gets its greatest appreciation when its new owner drives it off the lot. If an accident happens within a year or so, it is likely that the payment for the total car will be less than the owner has on it.

When Is A Car Considered Totaled?

If a creditor is able to obtain a court judgment, they can then pursue means to collect the deficiency balance, including garnishment of wages or bank accounts.

This becomes more likely if the buyer takes advantage of a special financing offer that minimizes or eliminates the down payment. While these programs certainly prevent you from having to part with a large chunk of cash to buy a car, they almost guarantee that you’ll ride the lot with negative equity.

If your​​​​​​​​​​​​​​​​​​​​insurance check cannot pay off your car loan in full, the amount that is left over is known as a deficiency balance. Because this is considered unsecured debt—the guarantee that it’s secured is now destroyed—the supplier can be aggressive about collection. This may include seeking a civil judgment against you to force you to pay what you owe.

Like the replacement cost problem, this problem has a solution. You can add gap insurance to your policy to ensure you never have to deal with a remaining balance on a totaled car.

What Happens When A Car Is Totaled?

This coverage pays for the cash value of your vehicle as determined by the insurance company and pays for any deficiency balance left after you apply the proceeds to your loan.

Car insurance companies use many factors when valuing a car. These factors may include the make and model of the vehicle, previous accidents, normal wear and tear from use, replacement of all parts, mileage on the vehicle, and the overall market value for the vehicle.

When paying for the loss of your car, insurance companies will typically use actual cash value, also known as market value, which takes into account the replacement cost of the car minus depreciation. This is what you would get for the car if you were to sell it on the market today. Replacement cost, on the other hand, is the value of replacing your car with a similar make and model. It does not take specific factors into consideration, such as wear and tear. Replacement costs are beneficial to the vehicle owner, while the actual cash value is beneficial to the insurance company.

How To Buy A Totaled Car From Insurance Company

Yes, you can ask for more money if your car is totaled when negotiating with your insurance company. You must do research beforehand and provide a reason with support as to why you should receive more money. It is advisable to research the actual cash value of your vehicle, know your state’s threshold for total loss, and any other information that would help your case.

Collision Repair For A Totaled Car

Dealing with insurance companies can often be difficult, especially when a lot of money is at stake. Evaluating the value of a car can be even more difficult than other areas of insurance because the valuation is entirely up to the insurance company and their methods are rarely disclosed. Doing some research and familiarizing yourself with the process can help you gain a stronger negotiating stance when dealing with your auto insurance company.

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