Insuring A Totaled Vehicle: Is It Allowed?

Yes, you can insure a total loss vehicle, but it can be difficult and costly. A total loss vehicle is typically defined as a car that an insurance company deems not worth repairing due to extensive damage. While it is possible to keep and repair a totalled car, it will require a different type of insurance, known as salvage title insurance, which is harder to obtain and often provides only liability coverage. This type of insurance is designed to protect individuals involved in accidents by ensuring that all drivers have the financial means to cover a minimum level of costs for any injuries or damages caused.

What is a total loss?

A total loss is a car that the insurance company determines is not worth repairing based on its calculation of the car's value. If the cost of repairing a car exceeds the car's value before the damage occurred, the car is considered a total loss.

In some states, there are laws that require an insurance company to declare a vehicle as "salvaged", or totalled, if the repair costs exceed a certain percentage of the vehicle's pre-crash value. For example, in Iowa, an insurance company is required to declare a vehicle as totalled if the repair costs exceed 50% of the vehicle's value before the crash. Other states have higher thresholds, with many at 75%.

When a vehicle is determined to be a total loss, the insurance company will pay the owner the pre-crash market value of the car, minus the owner's deductible, as long as the owner has comprehensive or collision coverage. If the owner decides to keep the vehicle, the insurance company will deduct the salvage value from the payout.

Obtaining insurance for a total loss vehicle can be difficult and expensive. Insurance companies may require proof that the vehicle is roadworthy and will often only offer liability coverage.

Can you keep a totalled car?

Yes, you can keep a car that has been totalled, but there are several factors to consider. Firstly, a totalled car will need a salvage title, and insurance for such a vehicle can be harder to find and more expensive. You will also need to get the car inspected and apply for a rebuilt title before you can legally drive it again.

If you decide to keep your totalled car, the insurance company will pay you the vehicle's cash value minus any deductible due and the amount the car could have been sold for at a salvage yard. This means that you will have to arrange and pay for any repairs yourself.

Keeping a totalled car can be a complex process, and it is important to be aware of the laws and regulations in your state. It is recommended that you consult with a professional, such as an attorney or insurance expert, to understand the specific requirements and implications of retaining a totalled vehicle.

How do insurance companies value cars?

Insurance companies assign a value to your car to calculate how much money they will pay out if it is damaged or destroyed. This value is known as the actual cash value (ACV) and is the amount of money your car is worth today, taking depreciation into account. As soon as you drive a new car off the lot, it depreciates, so the ACV is not the amount you paid for the car but how much you could sell it for today. This will almost always be less than what you paid, even if you bought the car recently.

The ACV is important because it determines how much your insurance provider will pay out in the event that your insurer declares your car “a total loss”. If the cost to fix damage to your car is higher than a certain percentage of your car’s ACV, it’s declared a total loss. In the event your car is totalled under a covered claim, you’ll get reimbursed for its ACV (minus your deductible).

Insurance companies determine a car’s value by considering factors such as its age, the number of miles on the clock, and its condition in terms of wear and tear. They also take into account any past accidents and damage, any modifications you’ve made, and its salvage and resale value. Companies either use their own proprietary software or third-party software to calculate the ACV based on these factors.

There are alternatives to ACV, such as agreed value and stated value, which are often used when insuring classic cars. With agreed value, the insurance company and the policyholder agree on the value of the vehicle when they write the policy. In the event of a total loss, the policyholder will be paid the agreed value regardless of how much the car has depreciated. With stated value, the policyholder obtains documentation that lists the stated value of the car to the insurance company. However, the policyholder may not receive the full stated amount if the car is damaged or stolen.

If you disagree with the insurance company’s valuation of your totalled car, you may be able to dispute it. You can do this by researching the price of similar cars in your area, making sure your insurance company has the right specifications for your car, and getting your car appraised by an independent professional.

What happens if you have a loan on your vehicle?

If you have a loan on your vehicle, you are required to have collision and comprehensive insurance coverage. This is because the lender needs to ensure that their investment is protected in the event of an accident or damage to the car. If you fail to make your car loan payments, your lender will eventually declare your loan in default, which can happen after 30 to 90 days of missed payments, depending on the terms set by your lender. As a result, your car may be repossessed, and your credit score will take a significant hit.

If your car is repossessed, the lender will attempt to sell it at an auction or private sale to recover their investment. If the sale price is lower than what you owe on the loan, you will be responsible for paying the remaining balance, known as a deficiency. In most states, lenders can even sue borrowers to recover this deficiency.

It is important to note that even if your vehicle is declared a total loss, you can still keep, repair, and drive it. However, you will need to obtain salvage title insurance, which can be more challenging and costly. Additionally, car insurance companies may require proof that the vehicle is roadworthy and may only offer liability coverage.

If you are struggling to make your car loan payments, it is advisable to communicate with your lender as soon as possible. Lenders may be willing to offer more flexible repayment terms, such as a payment deferral, reduced payments, or a new repayment schedule. Alternatively, you can consider selling your vehicle and using the proceeds to pay off the loan or opting for voluntary repossession, where you surrender the vehicle to the lender to recoup some of their losses.

Can you dispute a total loss decision?

Yes, you can dispute a total loss decision. Here are the steps you can take:

Request an Estimate from Your Insurance Company:

Call your insurance company and provide them with information about your vehicle, including the year, make, model, and a description of the damage. They will use this information to calculate the likelihood of your vehicle being a total loss. Ask them to tow your vehicle to a garage or mechanic instead of a salvage yard.

Wait for Their Decision:

Once they have inspected the car, the insurance company will decide if it is a total loss. If they deem it totaled, they will offer you a sum based on their assessment of the car's value prior to the collision.

Review the Report:

Ask the insurance company to provide you with a copy of their report. Review it for any inaccuracies or missing information, such as incorrect mileage or unmentioned upgrades.

Gather Your Records:

If you believe they have undervalued your car, gather records that show its value and maintenance history. This includes receipts for repairs, upgrades, and any relevant documents from the previous owner.

Do Your Research:

Find evidence that your insurer undervalued your vehicle or overvalued the cost of repairs. Use resources like Kelley Blue Book, online listings, or newspaper ads to determine the value of similar vehicles in your area. You can also get a repair quote from a mechanic.

Submit Your Evidence:

Present your records and research to the insurance company to support your claim. Provide detailed calculations and evidence showing that their initial valuations were inaccurate.

Request an Appraisal:

Check your insurance policy to see if you are guaranteed the right to an independent appraisal. The insurance company may hire an appraiser to inspect your vehicle or offer you more money to settle the claim.

Negotiate:

Remember that insurance companies have the upper hand, but you can exercise some power by refusing to settle right away. Insurance adjusters are often under pressure to settle cases quickly and may have some discretion to increase the settlement amount. Present compelling evidence and demonstrate that you are not in a hurry.

File a Complaint:

If you believe your insurer has acted in bad faith by making an unreasonably low offer, you can file a complaint with your state's Department of Insurance. They will investigate your claim and may mediate the issue.

Frequently asked questions