Welcome to the ABCs of Insurance Claims. Over the next few months, Sherri Walker, Sentinel’s Director of Claims will address an aspect of claims handling for every letter of the alphabet to help provide a better understanding of the claims process.
Your Guide to Total Loss Vehicles
One of the worst sounds in the world is the sound of screeching brakes right before impact of a motor vehicle accident. Second to that is the sound of your adjuster telling you that your car is totaled, and they are working up the claims settlement amount. Whether the car was Grandma’s grocery getter that was lovingly passed down, or just our normal daily driver, many of us have an emotional connection to our vehicle. Even for those who view their vehicle as “just a car”, the economic impact of a total loss can be difficult to take.
Once the debris is swept away, and the adjuster has begun their assessment, there are lots of things to be done and decisions to be made. While some vehicles may be described as OTL, or Obvious Total Loss, some vehicles will be harder to determine. When that is the case, your adjuster will complete an estimate to determine if the damage is severe enough to render the vehicle a total loss.
This is governed under state law, and each state sets their own threshold for when a vehicle is no longer repairable. For example, in North Carolina, if the damage estimate exceeds 75% of the value at the time of loss, then the vehicle would be declared a total loss. There can be other factors taken into consideration that could make the vehicle a “constructive total”, such as anticipated supplements, large tow or storage bills, and for third-party losses, rental expenses, and potential diminished value claims.
Declared a Total Loss - What's Next?
So now that the adjuster has finalized the verdict, and the vehicle is confirmed as non-repairable, what happens next? Your adjuster will likely guide you to remove your personal belongings and the license plate from the vehicle. It is imperative that the license plate either be turned in or transferred to another vehicle in a timely manner. This prevents additional taxes or registration fees from being assessed and can prevent receiving fines from the Department of Motor Vehicles.
Your adjuster may then either hire someone to complete an appraisal or will run a valuation on your vehicle. You should receive a copy of this report, and are advised to review it carefully. The report will detail the options and condition of your vehicle at the time of loss. The options listed and overall condition play into the settlement value. If you disagree with the information provided in the report, now is the time to let your adjuster know. Once the next steps occur, there is no going back and arguing the value at a later date.
Actual Cash Value vs. Owner Retained Salvage
Typically, when the valuation is returned to the adjuster and presented, there will be two types of offers made. The first being a traditional settlement offer in which the insurance company takes possession and ownership of the total loss vehicle. This offer is for the Actual Cash Value of your vehicle, which is a depreciated amount. Typically, that amount is reached by surveying the local market for similar year, makes and models that are currently for sale.
Adjustments are then made to the prices of those vehicles based on the total loss. For example, if one of the market samples has 75,000 miles, and the total loss vehicle only has 60,000 miles, a set amount would be added to the value of the total to make up the difference in mileage. Conversely, if one of the market vehicles has a spray in bed liner and the total loss did not have any bed liner, a deduction would be made. In a traditional offer, there would also be the addition of state sales tax as well as title and licensing fees. These are added as you are basically “selling” the total loss to the insurance company.
The second offer made is known as “Owner Retained Salvage”. In this settlement offer, the Actual Cash Value is still determined in the same way, but then a deduction is made for what the insurance company would have received as proceeds from sale of the salvage. This amount is typically determined based on historical data from the insurance company’s salvage vendor.
In this scenario, there would be no additional payment for the taxes and title and licensing fees, because you are keeping the vehicle, and no “sale” has occurred. You should note that when you choose to owner retain that vehicle, most states require that the title be branded as “salvage” since the vehicle has been deemed a total loss. It is also important to know that if your vehicle is sitting in a tow yard or storage facility, you may be responsible for a portion of the storage fees if you retain the vehicle. Make sure you address this with your adjuster as part of the settlement discussion up front.
Liens & Payments
An important factor to consider when it comes time to settle is whether you still have a lien or are making payments on your vehicle. If so, the adjuster will need the account information for that loan. The payoff of the lien will have to occur before any funds will be distributed to the owner, as the lienholder still holds the title until the loan is satisfied.
On occasion, if the value of the vehicle is less than the payoff, the loan is considered “upside down”, and you may have to make agreements with your lender to satisfy the balance owed. Many lenders will allow those balances to be rolled over into a new auto loan. It’s a good idea to review the original sales contract on that vehicle as well – you may have purchased GAP insurance which would pay the difference. Additionally, if you purchased an extended warranty and the vehicle has totaled before the terms of that warranty expire, you may be entitled to a refund of part of those fees.
The DMV & Paperwork
Once the offers are made, and the settlement has been determined, there is paperwork to be done. For a traditional settlement, you will need to surrender the title to the insurance company, and there will be state specific forms to be signed. If you are owner retaining the vehicle, you may still have state specific forms and may need to provide a copy of the front and back of your title and have paperwork notarized.
Either way, it’s important to make sure that you are signing any Department of Motor Vehicles paperwork exactly as your name appears. The DMV is extremely specific regarding the signature and execution of these documents.
If the adjuster has provided a rental for you through the total loss process, they will also let you know how long they are able to extend the rental. Depending on the company, it may be as few as a couple of days from the offer to a couple of weeks. When all is said and done, make sure to let your insurance representative know that the vehicle has been deemed a total loss so that they may amend your policy accordingly, as well as adding any new replacement vehicle that you purchase.
Safeguarding Your Success
While the ins and outs of the claims process can be overwhelming, the knowledgeable team of professionals at Sentinel can help guide you and provide you with all the information you need to make an informed decision, even when you feel you are at a “total loss” for how to proceed. Contact us today to learn more.