Archive for October, 2010

Total Loss

Friday, October 8th, 2010

A total loss is where an insurance company would rather buy your vehicle, than repair it. This is a bit of an over-simplification, but in large part, terribly accurate. I was prompted by a conversation with one of our clients the other day, to try and put down the various points of interest with regard to a vehicle being considered a total loss by an insurance company. Here’s the bottom line: A vehicle is considered a total loss when it’s financially more advantageous for the carrier to buy the vehicle rather than repair it – period. I can’t remember the last time a vehicle was deemed a total loss due to a structural concern, one that would make it unsafe to repair. I suspect they exist, I just haven’t personally seen one in a very long time. It’s virtually always about the money. It might help to know that a general rule of thumb that many insurance companies run with is that if a repair breaches 70% (or 80% in some cases) it becomes a likely candidate for being considered un-repairable.    

“My vehicle’s frame is bent, so it must be a total”. Current collision repair technology, in tandem with modern vehicular design, have made it where damaged frames are either repaired or replaced* on a regular basis. So frame damage will not, in and of itself, create a total loss.

*Full frame replacement applies to conventionally framed vehicles (these are the heavy steel, black ladder-like frames found under pickup trucks and most SUV’s). Uni-body designed frame replacement, on the other hand, is almost universally done in sections or pieces, almost like replacing parts of a jigsaw puzzle. Uni-body vehicles (virtually every car on the road) have their frame woven through and welded directly to the sheet steel understructure, making the body and frame inseparable; conventionally framed vehicles, conversely, can have their bodies lifted right off the frame, following removal of the necessary bolts and hardware, of course.

“They’re going to give me half of what my car’s worth”. Total loss compensation is characteristically based upon actual recent market sales of similar vehicles, as well as averaged prices of similar automobiles currently up for sale. This data is typically tracked by an outside, third party source, and then supplied (for a fee) upon request to the carrier for claims loss resolution.

The key phrase here is “made whole”. When being paid for your car, you should be provided the financial ability to buy a vehicle of the same age, mileage, wear and options, etc. as the one being totaled. The underlying insurance processing model is to restore you back (again, to make you whole) to where you were … just prior to the accident or loss. So, ideally the insurance company supplies the funds to do just that. Now we all know that that can be rather tough to do sometimes. There are no guarantees that a perfect match for your car (in its ever changing condition) is patiently waiting on standby for you, should you need an identical replacement at a moment’s notice. And of course none of this addresses the valid concern that you know your vehicle, and won’t have the same intimate knowledge of how another used car’s been treated by its past owner. However true this last statement may be, the legal system unfortunately has no way to accurately address this thorny issue and has consequently left it up to the old “buyer beware” system when replacing your car, should it be a total.

When trying to arrive at a fair market price for your automobile, I’d suggest doing some online research, as well as checking out the local pulp auto sales magazines. One important thing to remember (as I’d mentioned above) an insurance company often averages actual sales figures, along with local asking prices. As a result, the vehicle you actually find and its asking price may not always match the lower market figures the insurance company might be running with. This can be due to the ubiquitous negotiating that takes place during the sale of a car that frequently lowers actual sales prices, thereby affecting the carrier’s blended data. 

My car’s worth $10,000 so they have to spend that to fix it, right? Unfortunately that’s incorrect. Whenever I hear someone mention their car’s value, with the expectation that that’s what should be spent to repair it, I explain that that rarely, if ever, happens. Here’s why: the wrecked vehicle in its damaged state, still has value. As a result, using the $10K number above, an insurance company might recover $2K from the sale of the salvaged car, then reach into their pocket for the remaining $8K and make the individual whole for the $10K owed. Using this illustration, the insurance company was able to handle the claim with a net loss of $8K rather than $10K, a $2K savings. Why would they spend $10K on a claim that could’ve been resolved for $8K? The answer is they typically don’t. 

Supply a list of all of the various options on your vehicle while working with the adjuster. This is an extremely common problem. The best carriers dig deep to make sure that all of the options are taken into consideration while assessing a vehicle’s worth. But even the best can overlook something that will make a difference in what you’re paid. Double check what they’ve listed on their end, it might pay off. 

I’ve just spent $2,500 in repairs, so that should add $2,500 to my car’s overall value, right? The answer is – sometimes. Many times maintenance parts and labor (fan belts, brakes, transmission services, etc.) will be viewed as simple upkeep and not add to a settlement price. On the other hand, if you’ve just put a rebuilt transmission in for $2500, and have the receipts, that could have a tremendous impact on the insurance company’s view of your vehicle’s worth.           

Can I keep my car and pay to fix it myself? Absolutely! You’re normally welcome to “buy” the car back out of a total loss settlement. Keep in mind though, that if there’s a lien holder, they’ll have to be paid off, potentially leaving less money for you to work with on a repair. Okay, remember that salvage value I mentioned earlier? Using that same $10K example, you could keep or buy back the wrecked car for $2K and receive the remaining $8K (less any lien holder dollars) to work with toward a repair. I have to say, that I always recommend against retaining salvage, or keeping the wrecked vehicle and fixing it yourself. To begin with, I tell people that we’re like the home remodeling business, to the extent that we, more times than not, discover hidden damage that will add to the repair costs. When you retain the salvaged vehicle, these hidden damage costs will now be shouldered by you alone. This can potentially add up to a ton of money. In addition, here in California, to put the car back on the road you’ll have the added expense of paying for a smog check, as well as a certified brake and light inspection. Lastly, your automobile will forever be worth less as a rebuilt salvage. So you could spend a bunch of money on a car that’s potentially worth half as much when you’re all done. 

My car’s a classic and they’ve offered me too little. Here in San Diego, I’ve seen a 1955 Chevy used as a daily driver. I mention this because cars here can last a very long time and become more valuable as the years click by. That said, whenever there’s a price impasse between what the vehicle owner thinks and the insurance company’s position, even on a later model, the claims adjuster may opt to hire an outside, independent appraiser to arrive at an auto’s value. Be advised, these professional appraisals usually carry tremendous weight in court, should the claim ever land there.

I owe more on my car than it’s worth! This can be a huge issue, especially on a recently purchased car. We’ve all heard the old, “After you buy a new car, you’ll lose three grand just driving it off the lot”, right? Well, assuming for the moment that might be true, what happens if a half-mile down the highway someone does a hit-and-run to your new car, leaving you on the side of the road with a total loss? The short answer is that the insurance company owes market value at the time of the accident. So, I’m sure you can imagine where this could lead. The good news is that there’s a wonderful solution called gap insurance. Gap insurance is designed to protect someone from exposure in an instance like the one mentioned above. Your gap insurance policy would step in and fill the “gap” between what is owed and the current market value of the auto – whew!