What If My Car Is Worth More than What I Declared for Insurance?

Let’s say you got a good bargain when you buy your car and insured it at a price you bought it for. Then, you see that similar automobiles are worth a bit more in the market. Now, what happens if it is totaled and the adjuster discovers it is under-valued? Would they refuse to pay the claim?

These sort of things happen. People over or undervalue their properties without realizing and it is an honest judgement in most cases. They are not expert valuers or surveyors and they may not be up to date with the market. Carriers would not refuse to settle just because it is worth more money, especially when it was not a deliberate attempt to fraud.

What this would be considered and how would it be dealt with can be explained by a commonly used practice in the underwriting market.

What Is a Proportional Insurance?

This term explains how several underwriters share the risk. Basically, each firm would undersign for only certain portion of the total risk and they would only pay their share in case of claims. It is a term often used in the re-insurance market and in marketplaces like Lloyd’s of London.

This principle applies when a car is somehow wasn’t covered up to its real market value. What would normally happen is that the loss adjuster would consider the vehicle to be part insured and part self-insured. In other words, if the listed price on the policy is only about 80% of its current market value it would be considered 20% uninsured. In these calculations, if your automobile was totaled, you would only get 80% of its open market value from the carrier, minus deductibles.

Generally, what worries companies is the intent to fraud them. People try to get more money when they have a claim even though they didn’t suffer the loss. Or they give false information in the hope that their premium will be much lower. Motorists need to provide accurate information to the best of their knowledge. As long as policyholders can come up with reasonable explanation and proof they should be alright. This is a great example in which the policyholder can prove the purchase price.

People may be worried because come carriers have a bad reputation of looking for any excuse not to pay a claim. Proportional payment is fair for both the policyholder and provider and deals with the issue effectively. It would be disappointing to get penalized especially when it wasn’t an intentional act to deceive.

Does Auto Insurance Have to Pay Up to Listed Value?

When a total loss is considered, adjusters don’t necessarily look at the policy as to how much to pay to the claimant. They research the market for its fair price and pay that even it is less than what it was covered for.¬†This is the only way you can avoid moral hazard where policyholders are over-compensated. If people know that they can potentially get more money than they spent they would be encouraged to crash their cars.

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