Some motorists think their policy will pay whatever the price they stated when they insured the auto, if it is ever totaled. Considering premiums are calculated based on the declared value of the automobile, it isn’t difficult to see why people make such assumptions. The fact of the matter is that underwriters follow their own rules when it comes to paying for a vehicle that is written off due to a listed peril.
First of all, motorists must have Collision or Comprehensive coverage to be able to claim for a total loss. If it was damaged in a crash, Collision portion of a full coverage auto insurance pays. If it was due to theft, fire, flood, falling trees and other weather and accidental damages, Comprehensive coverage pays. Both of them have a deductible.
However, if the accident was someone else’s fault, you may be able to claim from their insurers even if you only have Liability only vehicle insurance.
According to indemnity rules, policies must compensate for the actual loss. Policyholders should not be better or worse off after they are paid for a claim. If your car’s open market value is $10,000 and you receive $15,000 when it is totaled you would have an incentive to make it disappear, so to speak.
This would create a moral hazard skewed against the insurer and they cannot have that. Everyone would suffer if they were easy on settlements because there has to be enough money in the pot to go around and the only way of making sure it is the case is collecting enough premiums.
Insurers must make sure that the compensation for a totaled car is fair for both sides. That is why they need to establish its current market price first. Then, the deductible and any cost of disposing the wreck will be subtracted from that figure. They would usually add the sales tax and cost of registering the replacement car to come up with the final settlement.
Regardless of how high you declared on the car insurance proposal form you would only get the open market value. They have no control over how people determine these figures and cannot be responsible for over-valuation. Nonetheless, they are happy to charge you more if you inflate the figure or you actually spent more than what it is worth. In which case, you would be wasting money on higher premiums for nothing.
How to Determine Actual Cash Value of a Car?
Fair open market price of a vehicle would be its Actual Cash Value (ACV). You may have bought it several years ago as new or second hand at great expense. Over the years it loses its attraction like most things. Insurance companies only look at its worth at the time they have to pay for a total loss. Initially you may be disappointed with the amount you get but you may understand their reasoning pretty quickly.
Generally, loss adjusters rely on resources like The Kelly Blue Book (KBB) when they are determining ACV because it is transparent and they can show you other vehicles that are similar age, model and condition as yours. In other words, automobile insurers pay you enough to buy a car just like the one you lost and not what it was worth when you bought it. Depending on the policy terms and conditions, reasonable additional costs like vehicle registration fee and taxes will be covered as well.
However, It is worth pointing out that sometimes adjusters may try their luck with a low figure and see if you would bite. You should be prepared for it and find out how much it would sell if you were to offer it on the market in its latest condition. Think about all the extras and its condition when you are looking up at KBB. A well looked-after and lower mileage auto would fetch a little more than a neglected one.
So, there may be room for negotiation and you could try it. You may need to explain as to why you think you deserve more and the research would be handy at that time. Reasonable approach may result in an increase in the claim check.
There may be exceptions to the above rules when the automobile is modified, classic or special in other ways. They are usually insured based on a predetermined “agreed value”. In such cases, the policy is endorsed to say that a predetermined “agreed value” is to be paid in case the vehicle insured is totaled.
If you are considering keeping the wrecked vehicle, you should let your carrier or the adjuster know before they dispose of it. There are a few things you need to know before attempting to buy a written off car. First of all, some states may not allow it. Secondly, a few companies wouldn’t want to insure an auto that was written off by another one. Thirdly, you may get less money from the claim because they may deduct the automobile’s salvage price, if there is any.
Usually, it is fast to determine a total loss and motorists should get the claim check between three to six weeks after the accident. But it can be much longer if there are complications and third party insurers involved.