When car accidents happen, dealing with insurance companies can be a real headache, especially if your car is totaled. Picture this: your car is declared a total loss, and the payout the insurance company offers isn't enough to cover a similar replacement. Stressful, right? Sadly, this is a scenario many drivers face. When repairs exceed a significant portion of the car's market value, insurers mark that car as “totaled.”
What can you do if your insurance payout doesn’t quite cut it? Let's explore some options to help you navigate things.
When is a Car Totaled and How is it Determined?
What does it mean when a car is “totaled?” In the world of insurance, a car is deemed “totaled” when the cost to repair it exceeds a certain percent of its market value. That threshold can vary from state to state and insurance policy, but generally, it falls around 65% to 80% of the car’s current value. In other words, if fixing your car costs more than it's worth, in the insurance company’s eyes it’s totaled.
For example, let's say your car's market value is $25,000, but the repair costs are $19,000. Given an insurance threshold of 75%, the car would be considered totaled since $19,000 exceeds 75% of $25,000.
If your car is financed, things get a little more complicated. If you owe more on your loan than the car’s market value at the time it’s wrecked, you can be in a position where you’re upside-down on your loan. This means while your insurer pays the actual cash value (ACV) to the lender, you may still owe them more to clear the debt.
Common Insurance Payout Limitations
Insurance companies often follow very specific guidelines when it comes to payouts. They focus on the car's ACV before the accident, which factors in depreciation. They don’t particularly care what you paid for the car when you first purchased it. They focus on what its market value is at the time of the crash.
This is where many people in car accidents get a bitter surprise. Even if you’ve been diligent about maintaining your car, customized it, or added brand-new parts, these might not reflect in the payout. An ACV is based on the vehicle's condition and market comparisons at that time.
To add insult to injury, a regular policy won’t cover any outstanding loan balance if you're upside-down on the money you receive from the insurance company and what you owe on the loan. Even with full coverage, you’re expected to pay any remaining loan balance out of pocket unless you have “gap insurance.” More on this shortly.
What Do I Do if the Insurance Payout Isn’t Enough?
What if the payout from the insurance company isn’t enough to cover your losses on your vehicle? Well, luckily you have some options.
Order an Appraisal and Continue to Negotiate
The first thing you can do is request an appraisal. An independent appraisal can provide a more accurate picture of your car’s value before the crash, taking into account model, mileage, condition, and even additional features that your insurer may have overlooked.
With this new valuation, you can renew negotiations with the insurance company with evidence to rely on. Start by reviewing the insurance adjuster's estimate in detail. Make sure to highlight things that are inaccurate and be prepared to prove why those things are inaccurate with documents and other evidence to build your case.
Don’t forget to stress to the insurance company how critical the vehicle was to your daily routine. That can sometimes help persuade the adjusters looking to save money on your claim. Be prepared with a realistic counteroffer using online value estimates, and make sure you include all the specific details of your car when you complete that estimate.
From there, filing a claim for a formal arbitration might be your next option. In arbitration, a neutral third-party reviews the situation and suggests a fair solution. If negotiations and arbitration still don’t pan out, speaking with a car accident attorney could be beneficial, especially if considering filing a lawsuit.
Exploring Gap Insurance and Its Benefits
Gap insurance can be a lifesaver in these types of situations. This coverage is designed for those who owe more on their cars than their ACV. If your car gets totaled, gap insurance covers the difference between the payout from your regular insurance and what you owe on your car loan. It prevents you from making payments on a car you can't even drive anymore.
Gap insurance is a must-have for those with long loan terms or low down payments. These financial situations often leave you with negative equity. Even if you’re making monthly payments like clockwork, a car depreciates quickly—approximately 20% in the first year alone. Having gap insurance ensures you're not trapped with an upside-down loan post-accident.
Check your current auto insurance policy to see if gap coverage is included or requires an add-on. Sometimes, new vehicles come with an endorsement for a new vehicle replacement. Always clarify the specifics to dodge unwanted surprises. Remember, not being financially prepared for a loss could mean using your savings to cover any outstanding balance.
Considering Buying Back Your Totaled Car
Buying back your totaled car is an option. If the insurance company has declared it a total loss, you can choose to buy the car back at its salvage value. This route can be appealing if the repairs are minor and less than the insurance deems, or if you have a sentimental attachment to the car.
Keep in mind the insurance payout will be reduced by the salvage value. Moreover, a car with a salvage title can be difficult to insure. Insurance companies often hesitate to provide full coverage for such vehicles since assessing value post-repairs can be tricky.
Before leaping into repairs, make sure to calculate potential costs and weigh them against the possibility of buying a new car. Ensure any purchasing decision aligns with your lifestyle, budget, and long-term needs.
In essence, while a totaled car can seem like a monumental setback, it’s reassuring to know there are pathways to mitigate financial fallout, reclaim your ride, or, at the very least, ensure that if it ever happens again, you’re better prepared. Keeping an open dialogue with your insurer and understanding your policy are instrumental steps in navigating this bumpy road.
What Are Your Legal Options When Insurance Isn’t Enough?
When your car is totaled and the insurance payout isn’t enough to cover the costs, you're faced with tough decisions. Arbitration can be a beneficial next step. In many states, including New York, auto insurance regulations allow for arbitration as a means of resolving disputes. This involves a neutral arbitrator reviewing your case, the insurance company’s findings, and what you're requesting.
During arbitration, you'll meet with a representative from your insurance company and an arbitrator. You'll present your case, supported by evidence such as your car's appraised value, photos from the accident, and any relevant documents. The arbitrator listens to both sides and delivers a binding decision.
It’s generally faster and less expensive than taking a case to court. Plus, it offers a chance at an unbiased resolution—sometimes helping you win a larger settlement than initially offered. If arbitration isn’t successful or available, legal action might be the next avenue. Filing a lawsuit against the insurance company could potentially increase your total loss payout.
Depending on the situation, you might also explore a “bad faith” claim if the insurer is not acting in good faith by underpaying valid claims. Attorneys can guide you through this complex process, assessing whether this claim is feasible for your scenario.
Conclusion
Dealing with the aftermath of a totaled car can be overwhelming, especially when insurance doesn't cover everything. However, there are practical steps you can take. Our attorneys at Horn Wright, LLP are ready to assist you with sorting out the mess involved in dealing with insurance after a car accident.