How do car insurance companies determine a car’s salvage value?
Whenever a vehicle is severely damaged an auto insurance company may need to declare it a total loss. This occurs whenever the car sustains so much damage that it would not be economical to repair it. For valuable vehicles, this usually means substantial or irreparable body damage. For older-model vehicles, however, this damage can be very minor. A vehicle over 10 years old may sustain minor cosmetic damage and be considered a total loss as the repairs will cost more than the car is worth.
Once a vehicles is classified as a total loss the insured has two choices: either they can hand the car over to the insurance company, or they can retain the salvage rights to the car. In the first case, the insured will receive a settlement amount based on the actual cash value of the vehicle less any applicable deductible. In the second case, the insured may still receive a portion of the settlement, but it will be reduced. Essentially, the insured will need to buy the car back from the insurer at the salvage price.
How Does the Insurer Determine the Salvage Price?
Calculating a vehicle’s salvage price is not an exact science, and there are no set rates for how much a salvaged vehicle should be worth. In fact, the value of a salvaged car is negotiable, and the insured may be able to work with the insurance company to arrive at a suitable figure. An insurance company will usually follow these steps when determining the value of a salvaged car:
What was the vehicle’s market value before the accident?
This figure is usually derived by averaging the trade-in value with the wholesale value.
What damage needs to be subtracted from the vehicle’s value?
Before the accident, if the car had any wear and tear or preexisting damage, that damage will be subtracted from the car’s overall worth. The resulting figure is the vehicle’s final market value.
What percentage does the insurer use to calculate salvage?
Some insurers salvage a vehicle at 75% of its market value. Others may have a higher or lower figure.
You are entitled to the total value of your vehicle. The salvage figure will always be less than the actual cash value of the car, so you will receive the difference as a settlement check as long as it is higher than the amount of your deductible. For example, if your vehicle is worth $1,000 and the insurance company salvages at 75%, you will receive a check for $250 in addition to the salvaged auto. If your deductible is $500, you won’t receive a check and you may need to pay the difference to the insurer.
If you choose not to retain the salvage rights on your vehicle, the insurance company will sell it at an auction in a salvage yard. The funds received will go toward reimbursing the cost of the claim. Many people shop at salvage auctions for used car parts or repair projects.
Concerns of Keeping a Salvage Car
If you do decide to keep your salvaged vehicle, there are a few things to be aware of. First, the vehicle will need to be re-titled with a salvage title. If you plan to use the vehicle for parts, you do not need to buy insurance for it. If you plan to drive the vehicle, however, you will need to carry liability insurance on the car.
Most auto insurance companies will not provide full coverage auto insurance on a salvaged vehicle. This is because the car has already been totaled by another insurer and thus it is effectively no longer worth anything. Some insurers will not provide any insurance coverage at all on a salvaged car, so be sure to clarify with the insurer whether this would cause any problems or not at the time you purchase the policy.
Bear in mind that it is your responsibility to inform any potential buyers that the car is a salvage. If you intend to sell the car at any point, the buyer has the right to know that the car is a salvaged vehicle so that he or she can make an informed decision about purchasing it.
Salvaging an old car is a good financial decision in many cases, but sometimes accepting the settlement offer and buying a new car is the better choice. If you are ever faced with this decision, be sure to weigh your options carefully so that you can make the best decision for your specific needs.