Understanding Auto Insurance: Maximizing Your Payout

Getting a good auto insurance total payout depends on several factors, including the type of insurance coverage, the severity of the damage, and the vehicle's value. Firstly, ensure you have the right insurance coverage, such as collision or comprehensive insurance, which covers total losses. When your car is deemed a total loss, an insurance adjuster will assess the damage and determine its pre-loss value or actual cash value (ACV). This value is based on factors like the vehicle's make, model, age, mileage, and pre-loss condition. You can negotiate the payout if you believe your car's value is higher, and it's recommended to research similar vehicle values beforehand. Additionally, consider adding gap insurance to cover any remaining balance on a leased or financed vehicle. Understanding these factors and your insurance policy will help you get a good total payout and navigate the claims process effectively.

How to calculate your car's value

When it comes to auto insurance, the value of your car is a key factor in determining the cost of your policy. This is because the insurance company will need to take into account the cost of paying out for expensive parts and repairs, or replacing the car if it's written off or stolen.

There are two main approaches used by insurers to determine the value of your car:

Market Value

This is the current resale value of your car. Most insurers will ask for this, rather than the original purchase price. This is also known as the 'actual cash value' or ACV.

To calculate the market value of your car, you can use online car valuation tools such as Parkers, CAP, or Glass. Simply enter your registration number and mileage, and these sites will provide a valuation based on live market data. You can also check sites like AutoTrader and Motors.co.uk to see what similar vehicles are being advertised for.

Agreed Value

This is a set amount agreed between you and the insurer at the start of the policy. Payouts for write-offs or theft are based on this value. This type of policy is usually taken out by owners of rare, specialist, kit, or classic cars, which are worth more than the average market value for their age.

To get an agreed value policy, you'll need to prove your car is worth more than its typical market value. This might include providing photos of the car, inside and out, and getting an independent vehicle valuation from an expert.

Other Factors Affecting Car Insurance Premiums

While the insured value of your car is important, insurers also consider a range of other elements when calculating premiums, including:

• The age of the driver: The risks associated with young drivers are likely to affect premiums more than the value of the car. Older drivers are considered less of a risk, so the value of the car may have a greater impact on premiums.
• Insurance group: All cars fall into an insurance group from 1 to 50, with higher-powered cars in the higher groups. The insurance group affects the risk associated with the car's value.
• Mileage and journey type: Higher annual mileage and certain types of journeys (e.g. frequent long-distance travel) can increase premiums.
• Security features: Cars with high-security door locks or alarm/immobilization systems as standard can be placed in a lower insurance group.
• Where the car is kept: The risk of theft varies depending on where the car is usually parked or stored.
• Driver experience and history: The number of years of driving experience, as well as any past claims or convictions, will be taken into account.

When Valuation Falls Short

It's worth noting that insurance payouts for totalled cars may not always cover the amount you still owe on the car loan. This is because the insurance payout is based on the car's market value, which can be significantly lower than the purchase price, especially for new cars. This is known as the "depreciation problem".

To avoid this issue, you can add gap insurance to your policy, which covers any remaining balance on a totalled car. Alternatively, you can opt for replacement cost insurance, which pays out the current market rate for a new car in the same class as your wrecked car. However, these options tend to be more expensive.

Understanding your insurance coverage

Types of Auto Insurance Coverage

Auto insurance policies typically consist of six separate coverages, each with its own premium. Some of these coverages are required by state law, while others are optional. The common types of auto insurance coverage include:

• Bodily Injury Liability (BI): This coverage protects you if you cause an accident in which someone else is hurt or killed. The minimum required amount varies by state, but financial experts often recommend carrying at least $100,000 per person and $300,000 per occurrence.
• Property Damage Liability (PD): This coverage protects you when you damage someone else's property, such as another vehicle, buildings, utility poles, or garage doors. The minimum required amount is determined by state law.
• Collision Coverage: This optional coverage reimburses you for damage to your car if you collide with another vehicle or object, such as a tree or fence. It is not required by law, but your bank may require it if you have an auto loan. You can usually choose a deductible for this coverage.
• Comprehensive Coverage: This optional coverage protects your car in cases of damage or loss that don't involve a collision. It covers risks such as fire, theft, flood, vandalism, and accidents with animals. Like collision coverage, comprehensive coverage may be required by your bank if you have an auto loan, and you can choose a deductible.
• Uninsured/Underinsured Motorist (UM/UIM) Coverage: This coverage protects you if you are hit by a driver without adequate insurance or no insurance at all. It covers medical and other expenses, and whether it is mandatory or optional depends on your state laws.
• Medical Payments Coverage (MedPay or MPC): This coverage pays for medical expenses for you and your passengers, regardless of who is at fault in the accident. The specifics of this coverage vary by state.

Understanding Your Policy

Your auto insurance policy is a legal contract, and it's important to understand its components:

• Declarations Page: This is where you'll find your personal information, the policy period, the premium amount, a description of the coverage provided, and the maximum dollar limit the insurer will pay for a claim under each coverage.
• Insuring Agreement: This section describes what the insurance company will do in exchange for the premium you pay. It also specifies who is covered by the policy, including named insureds, residents of the same household, and persons using the car with permission.
• Conditions of the Policy: This section outlines your responsibilities when filing a claim, such as reporting timelines and documentation requirements. It also explains the terms for canceling the policy by either party.

Coverage Amounts and Deductibles

Understanding your coverage amounts and deductibles is crucial. Coverage amounts refer to the maximum your insurance will pay out per accident or claim. On the other hand, a deductible is the amount you pay out of pocket before your insurance coverage kicks in. Generally, opting for a lower deductible will result in higher rates.

Claim Filing

Familiarize yourself with the process of filing a claim. Know the directions and requirements to ensure a smooth and timely claim process.

Understanding Total Loss and Payouts

A "total loss" refers to a vehicle that is damaged beyond repair or is no longer drivable. In the event of a total loss, your insurance company will determine the value of your vehicle before the accident and provide a payout based on that assessment. This payout may not cover the cost of replacing your vehicle with a new model, and it may not include any remaining car payments you owe. To ensure coverage for these aspects, consider adding special add-ons to your policy, such as gap insurance or replacement vehicle coverage.

State-Specific Considerations

Different states have varying laws governing insurance payouts and requirements. For example, some states have specific thresholds for repairs that insurers use to determine if a vehicle is a total loss. Discuss your coverage with your insurer to ensure you meet the requirements for your state.

What to do if you still owe money on your car

If your car is totaled and you still owe money on it, you are generally responsible for paying off the remaining loan balance. This is because a standard auto insurance policy will only reimburse an amount equal to the car's current market value, which may be less than the loan amount still owed. This situation is known as having an upside-down car loan or negative equity. Here are some steps you can take if you find yourself in this situation:

• Check if you have gap insurance: Gap insurance covers the difference between the car's value and the loan amount still owed. If you have gap insurance, file a claim with your gap insurance provider to cover the remaining balance.
• File an insurance claim: Whether or not you have gap insurance, you will need to file a collision or comprehensive claim, depending on the nature of the incident that totaled your car.
• Wait for your insurer's decision: Once your claim has been reviewed and accepted, your insurer will agree to pay the car's actual cash value (ACV) after you've paid your deductible. If the ACV is less than the remaining loan balance, you will be responsible for paying the difference.
• Pay off the remainder of the car loan: If you do not have gap insurance and there is a gap between the car's ACV and the remaining loan balance, you will need to continue making payments until the loan is paid off.

It's important to note that if your car is totaled, you may receive a lower settlement amount than expected. This is because the settlement is based on the car's ACV, which takes into account depreciation, mileage, and other factors. To get a better understanding of your car's ACV, you can use online tools like Kelley Blue Book or consult a qualified mechanic. If you feel that the settlement amount is too low, you can try to negotiate with your insurance company or hire an attorney to help you get a higher settlement.

Can you keep your car if it's totalled?

Yes, you can keep your car if it's totalled, but there are a few things to consider. Firstly, check your state laws to see if you're allowed to keep it with a salvage title. Some states may restrict your ability to drive or sell a vehicle with a salvage title, and you may need to obtain a new title or a salvage certificate. Additionally, your insurance company may not offer coverage for a salvage vehicle.

If you're allowed to keep your car, the insurance company will provide a payout equivalent to the car's actual cash value, minus any deductible and the amount the car could have been sold for at a salvage yard. This means you'll get a smaller insurance payout, as the insurer will subtract the car's salvage value.

There are several reasons why you might want to keep your totalled car. You may want to fix it, sell it for parts, or you may have a sentimental attachment to it. However, keeping a totalled car can also have its drawbacks. The repairs could cost more than originally estimated, and you may need to obtain a salvage title, which can make it challenging to sell or insure the vehicle.

If you decide to keep your totalled car, you'll need to weigh the pros and cons and ensure you understand the costs and legal requirements involved.

How to get the most from your insurance company

Getting into a car accident can be a stressful experience, and dealing with insurance companies afterward doesn't make it any easier. Here are some tips on how to get the most from your insurance company after a car accident:

Understand Your Insurance Policy

Before an accident occurs, it is important to familiarize yourself with your insurance policy. Know what is covered and what is excluded. Understand your policy limits, deductibles, and coverage types. This knowledge will help you navigate the claims process and ensure you get the most from your insurance company.

Act Quickly

Time is of the essence when it comes to filing a claim. Contact your insurance provider as soon as possible after an accident. They will guide you through the next steps, including towing your vehicle to a repair shop or assessing the damage. The sooner you initiate the claims process, the sooner you can receive your payout.

Gather Evidence

Document as much information as possible at the accident scene. Take photographs of the damage to your vehicle, the accident scene, and any relevant traffic controls or visual obstacles. Obtain contact information and insurance details from all drivers involved. If there are witnesses, get their names and contact information as well. This evidence will support your claim and help expedite the process.

Research Your Car's Value

Before agreeing to a settlement, it is crucial to independently research your car's value. Use online resources, such as Kelley Blue Book, to determine its current market value or pre-accident worth. This knowledge will help you negotiate a fair settlement and ensure you receive a reasonable payout.

Negotiate with the Insurance Adjuster

Insurance adjusters will assess your vehicle's damage and determine its value. If you believe their valuation is too low, you have the right to negotiate. Provide evidence, such as written estimates from trusted mechanics or body shops, to support your claim. You can also refer to local listings of similar vehicles to demonstrate your car's market value. Remember, the more evidence you have, the stronger your case will be.

Consider Using an Appraisal Clause

If you and your insurance company disagree on the settlement amount, you may be able to invoke the appraisal clause in your policy. This clause allows for a special negotiation process where both parties select their own appraisers to evaluate the vehicle's value. The appraisers then choose an umpire to make the final decision, which is binding.

Seek Legal Assistance

If you feel that you are not getting a fair settlement offer or are having difficulty navigating the claims process, consider consulting a personal injury lawyer. A lawyer can review your case, negotiate on your behalf, and help you get the most from your insurance company. They can also advise you on your rights and options, especially if you plan to fight the insurance company.

Remember, it is important to remain calm and collected throughout the process. The more informed and organized you are, the better your chances of receiving a fair payout from your insurance company.

Frequently asked questions