Sometimes when people get into a much serious accident. There are chances that their car gets damaged totally. Upon inspection, it may be realized that there is no point in trying to repair the car given its condition.
If the car is brand new it might still be worth repairing. Usually, the second hand and old cars that have worn out considerably are difficult to repair. Insurance companies term such a car as a “total loss” or a “totaled car”.
So what should you expect from the insurance company to pay you for a totaled car? Different insurance companies use different methods to make estimations of payments for a totaled car. However, here are some important considerations.
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Estimate Value Of The Totaled Car:
When you contact your insurance company they send an adjuster to review the situation and evaluate the damages. If the cost of repair exceeds 60% to 70% of its value then the car is termed as totaled.
Once the adjuster thoroughly checks and classifies the vehicle as totaled. He then performs an appraisal to figure out the value of the car had the accident not taken place. The insurance company also hires the services of a third-party appraiser to give his estimate of the vehicle.
This is done to ensure there are no major discrepancies and mishandling in the process of value estimation. Based on the estimation resulting from the two appraisals. The insurance company gives you an estimate of the totaled car.
Actual Cash Value (ACV):
Actual cash value (ACV) refers to the amount anybody would be willing to pay for the vehicle had the accident not taken place. This value takes into account the cost of depreciation, mechanical issues and any problems with the exterior of the vehicle such as dent or scratches.
In the case of classic cars, value estimation is done in a different way. ACV is quite lower than the price at which you bought the car. The insurance company carefully scrutinizes your vehicle from the miles on the odometer to the tiniest stains on the car seat in order to arrive at ACV.
Replacement cost is the estimation of the amount you will have to pay to buy a vehicle similar to one that has been damaged in the accident. ACV in most cases is even lower than the replacement cost. Usually, insurance companies make their offer on the basis of ACV, rather than replacement cost.
You can discuss the matter with the insurance company when signing the insurance contract with them if you want a payment on the basis of replacement value. However, in that case, premium payment will be higher than usual.
Usually, the amount paid by insurance companies for a totaled car is not sufficient to buy a similar car. This could be really distressing. Not just that, things could be even worse if you have damaged your brand new car that you bought on loan.
This could mean that you would be paying off a loan that is not benefitting you anymore. If the amount paid by the insurance company is not sufficient to pay off your car loan, the difference is termed as a deficiency balance.
Now that the car against which the loan was taken does not exist anymore, the lender becomes even more particular about recovering it. This issue can be resolved by getting gap coverage on your insurance policy. It pays for any deficiency balance remaining.
However, just like replacement cost, gap coverage calls for a higher premium. So if you have bought your car on loan it only then you should get gap coverage so as to protect you in case of any deficiency coverage.