What Happens When an Insurance Company Totals Your Vehicle?
If you're in a vehicle accident that involves extensive damage to your car, your insurance company may declare your vehicle as a total loss. In most cases, this means that your vehicle is not reparable and you will have to acquire a replacement vehicle. In some situations, however, a totaled vehicle may be repaired and put back on the road by a new owner or even you.
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Benefits
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When the insurance company declares your car a total loss, it will compensate you based on the terms of the collision coverage feature of your insurance policy and take possession of the vehicle. You will receive a claim check for the amount of the loss. If your vehicle is financed, the lien holder will be compensated first, and you will receive any remaining amount.
Potential
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The insurance company may have several options as to what it does with the vehicle. It may sell the vehicle to a junkyard or sell any salvageable parts in an attempt to reclaim some of its loss. The company may also repair the vehicle if possible and sell it at an auction as a salvage or reconstructed vehicle.
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Considerations
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If your vehicle is declared a total loss, you may be able to buy it back from the insurer if the company and state law permit. The company will deduct any amount it thinks it would receive by selling it as salvage from the remaining value. If you decide to pursue this option, your state may require that you obtain a special salvage title. Insurers have different rules as to whether they will insure a salvage vehicle and how much coverage they will offer.
Method
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Most insurance companies will use an actual cash value method to determine the value of your vehicle. Actual cash value takes into account the market value of the vehicle based on its age and model type and can be found by using a resource such as KellyBlueBook.com. The insurance company also considers any prior damage or wear and tear when determining the value. The amount of the deductible, which is the amount you pay before coverage takes effect, is also subtracted from the total claim amount
Warning
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It's possible that the amount of the claim payment you receive may not be enough to pay off a remaining loan balance. A situation known as being "upside down" in your loan occurs when you owe more than the vehicle is worth. A product known as gap insurance can be purchased when you buy the vehicle to protect you in this situation.
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References
- Photo Credit wrecked car image by hazel proudlove from Fotolia.com
