Totaled Vehicles and Insurance Payouts - What You Need to Know
Car accidents take their toll physically, mentally, and financially on those involved. Take the time now to learn about how insurance companies determine the value of your vehicle and you will have one less thing to worry about if your vehicle is ever “totaled” in an accident.
According to the car insurance industry, the term “totaled” doesn’t have as much to do with damage as you may think. When a vehicle experiences damage from an auto accident, the insurance company is more interested in the cost to repair the vehicle, rather than the overall amount of damage to the car. If the repair costs exceed what the insurance company considers the vehicle to be worth, the insurance company deems the vehicle to be “totaled” and the policyholder is paid the value of the vehicle. While most car owners are familiar will value guides like Kelly Blue Book and the NADA Official Used Car Guide, insurance companies generally refer to their own private databases when determining a vehicle’s value.
After making an assessment of your vehicle’s damages, the insurance company will make an offer which they feel is fair. The offer is meant to provide you the means to purchase a vehicle of the same style and condition of the one that was “totaled.” Insurance companies call this “making whole.” For example if you were driving a 5-year old pickup truck with 65,000 miles on it before the accident, your offer should provide you the money to purchase a similar truck with similar miles on it. As an informed policyholder, it is on your shoulders to make certain that your offer indeed makes your situation whole, putting you back behind the wheel of a comparable vehicle.
At times, insurance companies and policyholders cannot agree on a fair payout and drivers must turn to outside sources to help their case. Car owners can hire an independent appraisal service or take their case before an arbitrator. If considering having your vehicle appraised, factor the cost of the appraisal service into the equation and see if it is still a cost effective option. If you seek arbitration, keep in mind that there are binding and non-binding cases when arbitrating, and non-binding arbitration decisions can be appealed in court if you still consider the offer to be unfair.
In most cases, though, offers are easily agreed upon and your vehicle heads off to its final resting place – the salvage yard. Your vehicle will be dissected and sold for parts and scrap, with the insurance company keeping the profits. If you don’t want your car to meet this demise, you may opt to keep your damaged vehicle and pay for its repairs out-of-pocket, but this is not always the most economically wise decision.
Car owners who decide to keep their vehicle after it has been “totaled” receive a smaller payout from their insurance company. The offer is reduced by the amount of your deductible and the estimated amount of profits that would have been made from the salvage process. Owners who choose to keep their damaged cars run the risk of not receiving an offer large enough to get the vehicle roadworthy again. Re-insuring the vehicle will also be difficult in the future, as most insurance companies will only extend liability coverage to previously “totaled” vehicles, regarding they pass an inspection by the Department of Motor Vehicles.
Whether you choose to make the repairs yourself or have your vehicle salvaged, it is crucial that you understand how auto insurance companies operate before you are ever involved in an accident. By knowing this information, you will be prepared to get the most out of your vehicle, even if it is “totaled.”