What to Know When Insurance Companies Try to Total Your Car

••• Crash on the street. German auto model 2007. image by Dariusz Kopestynski from Fotolia.com

If you are involved in an automobile accident and the insurance company classifies your vehicle as a total loss, you and the insurer will have to come to an agreement on the value of the vehicle. Before you begin negotiations with the insurance company, you should know a few things.

The Cost to Repair your Vehicle

Insurance companies typically classify a vehicle a total loss when the cost of repairs reaches a certain percentage, usually between 75 and 85 percent, of the vehicle’s value. If you do not want your vehicle totaled and the repair costs are near the lower end of the total loss threshold, you can ask your insurance company to pay for the repairs. Although the insurer has the contractual right to total the vehicle, it may agree to pay for repairs if you sign a waiver releasing the company of responsibility for any additional damages found during the repair process.

How the Company Determined the Value of your Vehicle

Insurance companies determine the value of a totaled vehicle in various ways. Most use a third-party vendor that provides sales data on similar vehicles. Other companies use vehicle value guides such as those published by Kelley Blue Book and the National Automobile Dealers Association (NADA). Ask your insurer how it determined the value of your vehicle and request a copy of the valuation report. Review the report to confirm your insurance company correctly recorded your vehicle’s age, options and mileage.

Your Vehicle’s Salvage Value

When an insurance company settles a total loss claim, it takes possession of the damaged vehicle and sells it to a salvage vendor, or it gives the owner the option of keeping it. If you want to keep it, the insurance company will deduct amount it could have received from the salvage vendor, commonly referred to as the salvage value, from your final settlement. Ask the insurance company how much it will deduct from the settlement if you keep the vehicle. Then call several used car parts dealers and ask how much they will give you for the damaged vehicle. If the parts dealers offer you more than the insurance company will deduct, tell the insurance company you want to keep your vehicle and then sell it to the parts dealer.

Your Contractual Rights

The insurance laws of most states require that automobile insurance policies contain an appraisal clause. When you invoke the appraisal clause, you and your insurance company will each hire an independent expert to appraise the value of your vehicle. A third party, called an umpire, decides which appraisal is most accurate. You are responsible for paying the cost of your appraisal and 50 percent of the fee charged by the umpire.