Several years ago, when Linda Childers’ Ford sedan was totaled, her insurance company offered her a low-ball settlement offer. “A friend who worked in the auto repair industry suggested that I look online for cars that were the same model, mileage [and] condition as mine and see what they were being sold for,” says Childers, a writer based in the San Francisco Bay Area. “In doing this, I was able to get the price my insurance company was offering me increased by several thousand dollars,” she explains. Still, the payout wasn’t enough to buy her another vehicle, and she wound up leasing for a couple of years until she could buy.
[See: 10 Money Leaks to Shut Down Now.]
Childers isn’t alone. “If you feel the amount offered for your totaled vehicle is not enough — and it’s not unusual for an insurer to start with a low offer — don’t take it, and instead negotiate,” says Penny Gusner, a consumer analyst for insurance comparison websites Insure.com and CarInsurance.com. “To get more for your car, you’ll need to prove it’s worth more,” Gusner adds.
But first, what does it mean when a car is totaled?
“A totaled car is a vehicle that’s in need of extensive repairs costing more than a set percentage of the vehicle’s value,” says Matt Smith, an editor at used car listing website CarGurus.com. This percentage varies by state (for instance, Iowa’s standard threshold is 50 percent, while Texas’ is 100), but insurers can choose to set a lower loss threshold than the state’s standard. Typically, the percentage falls around 70 percent.
“When you file your claim, your insurance company will refer you to a claims adjuster,” explains Loretta Worters, vice president of communications at the Insurance Information Institute, which aims to improve public understanding of insurance. “The adjuster will verify the loss and determine what it will cost to repair the car. The adjuster’s estimate can serve as a benchmark to which to compare your own mechanic’s estimate,” she says.
However, even if your insurer considers your vehicle a total loss, you can choose to release your insurance company from its obligations, have the car repaired yourself and continue driving it or sell it for parts rather than accept a settlement. “If the goal is to stay on the road, taking the payout on a low-value car might not net you enough cash to replace your damaged vehicle,” Smith says. “Rather than taking the payout and then immediately spending it (and then some) on a replacement car, you could opt instead to repair the damage.” Or, the value of the car’s parts might be greater than the value offered by the insurance company and you could sell it for parts or as is.
“Much of this decision will boil down to the car’s value,” Smith says. “If your $45,000 Grand Cherokee is totaled, it will almost certainly make the most sense to take the insurance company’s payout. If the cost of your deductible is equal to a significant portion of your car’s value, then it may make more sense to release the insurance company from its responsibility and handle the repairs yourself.”
[Read: The Financial Considerations of Buying Your Teenager a Car.]
If you still have an outstanding loan on a car that’s totaled, then hopefully you also have gap insurance. “Gap insurance will pay the difference between the actual cash value paid by the insurer and what is still owed on your loan minus your deductible amount,” Gusner says. “Otherwise, you’ll be left to pay on a car you no longer have.”
Insurers won’t give you a higher actual cash value simply because you have an outstanding loan. But other factors can help you get a higher offer. Here’s how to negotiate for the best price.
Verify that your insurer used accurate information. “Make certain the settlement offer was based on the correct model with all of the correct options you had on your vehicle,” Gusner says. “If not, point that out and see if the offer is raised.”
Check local dealers. Gusner suggests going to local dealers to “see if you can get documentation on what they say your car would have been worth.” However, if you’re not honest about the condition of your car pre-accident, your insurer may not take your estimate seriously.
Search the local classifieds. Car values can vary by geography, so Sarah Lee Marks, president of Automotive Business Services, the parent company for several of her auto-related ventures, and the author behind the car service site MyCarLady.com, discourages people from doing a national eBay search, as that can skew results. “Try Craigslist under for sale by owner only,” she says. “This is a realistic way to evaluate the offer and appreciate how rare or common your vehicle is, when trying to replace it,” Marks adds.
Show your service records. Save your service records as this can help you make the case for a higher settlement offer. “Demonstrate value by offering recent service records from the last three months, or tire, brake and major services purchased in the past six months,” Marks says. “This value should add to the settlement before tax.” (In some states, you can get a sales tax credit on the trade-in of a used car, but if your car is totaled, you miss out on the chance to trade it in.)
A few other factors also come into play. “Time with the insurance company does weigh in your favor, as does their loss ratios for your area of the country,” Marks says. Those aren’t elements that you can control once you’re in an accident, but Marks suggests choosing a top-rated insurer rather than the one with the cheapest premiums for this reason. “Nobody expects to have a total loss, but picking the right insurance company can work in your favor when it comes to negotiating that loss,” she adds.
[Read: Should You Trade in Your Car or Sell It Yourself?]
Don’t be afraid to negotiate if you think your insurer isn’t offering a fair value. “You’re entitled to the market price of the car you just lost,” Worters says. “You shouldn’t get more or less than what you are due,” she adds.
More from U.S. News
10 Unexpected Costs of Driving
11 Ways to Save Time and Money
8 Big Budgeting Blunders — and How to Fix Them
What’s the Value of Your Totaled Car? originally appeared on usnews.com
