Car Insurance Laws Regarding the Replacement of a Totaled Auto

It's essential to understand what your insurance policy covers.
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If your car sustains significant damage in an auto accident, the insurance company may declare it a total loss, and instead of paying for repairs, will pay for replacement of the vehicle. The laws regarding replacement of a totaled vehicle vary by state, set by each state’s insurance regulators. In some states, insurers may offer a replacement vehicle, but typically, insurers pay the replacement value of the vehicle.

When You Can Get Replacement Cost

If you’re found at fault in an accident, you must have collision or comprehensive insurance for your insurance company to cover the replacement value of your vehicle. If you have only liability coverage, your insurer won’t reimburse you for the damage to your car. Liability coverage only covers damage to another driver’s vehicle if you cause an accident. However, if you’re involved in an accident and the other driver is at fault, you can file a claim with his insurer, which may offer you the cash value of your car if it declares it totaled.

How Insurers Determine Replacement Value

State laws regulate how insurers can determine the cash settlement. In Oklahoma, for example, insurers must base their offers on the cost of comparable vehicles in the local market. If there are no comparable vehicles in the local market, they must use quotes from local dealers or quotes from the NADA used car guide or another nationally recognized industry publication. In California, insurers must base their offers on two comparable used vehicles that were either sold or listed for sale within the previous 90 days; if drivers think the offer is too low, they can demand to see the cars on which the insurer based its offer. In Washington, drivers can hire an appraiser if they are working with their own insurers.

Additional Fees

In addition to the actual retail market value of a totaled vehicle, insurers must pay any fees related to the transfer of the replacement vehicle. This includes taxes and license fees. Insurers must also pay fees associated with the totaled vehicle. In the state of Washington, for example, insurers must pay the unused portion of a driver’s annual renewal fees on the wrecked vehicle. If a driver was required to renew his vehicle in February, and the vehicle was totaled at the beginning of August, the insurer must pay the remaining five months. Insurers are not responsible for what a driver still owes on a vehicle if the driver financed the car. For example, if the amount offered by the insurer is less than what the driver owes the lender, the driver is often responsible for the balance. However, a lender can require a borrower to carry the appropriate insurance to protect its interest in the collateral.

Replacement Vehicles

In some states, insurers can offer drivers a replacement vehicle rather than a cash settlement. Standards vary by state, but in general insurers must find a similar make and model of vehicle, though it does not have to be the same make and model as the original car. The replacement vehicle must be in the same condition or better than the totaled car and of comparable value. Many states dictate where and from whom an insurer can buy a replacement for a totaled vehicle, usually requiring insurers to purchase the vehicle from a dealership in the driver’s area. The state of Washington, for example, requires insurers to purchase the vehicle from a licensed auto dealership and not a private party. Insurers must also make the vehicle available for inspection by the driver, in a location near where the driver normally parks his car. If insurers cannot find a comparable vehicle, they can expand their search in 25-mile increments until they find at least two comparable cars.

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