October 31, 2011

What A Total Loss Means When Pursing A Car Insurance Claim

Once a car accident occurs, the drivers of both vehicles have choices to make. The first and most important is whether or not to have their insurance companies become involved - in some states, a minimum amount of damage will be required before things like a police report will be necessary, but a client can always choose to fix their damage on their own, though in some cases not reporting that the accident has occurred to an insurance company can constitute fraud. Sometimes, drivers in accidents will simply decide to go their separate ways, while in others, one will pay out in cash for the damage they have cause. Another reason that collision are sometimes not reported is because a driver does not want to deal with negotiating a car insurance claim, especially if they are concerned they vehicle might be a total loss.

The term "total loss" can be misleading, and often trips up insurance clients who examine their car and find it to have repairable damage. A trip to the body shop may show that a car has less than $10,000 or even $5000 worth of damage, and yet it still may be considered a total loss by a car insurance company. Why?

Car insurance policies work on the idea that a provider will pay either what the car is worth to fix, or what the car is worth on the market, whichever is more cost-effective. This means that if a car has a value of $9,000 on the market and $10,000 of completely repairable damage is done to the vehicle, a car insurance company can declare it a total loss and choose to pay their insured the $9,000 rather than having it fixed. Part of negotiating a car insurance claim is dealing with this concept of total loss, and knowing what to do about it.

If a company declares a vehicle a total loss, a driver can choose to repair the vehicle at their local body shop, and so long as they supply proof that the repairs have been properly completed, their insurance costs will likely not be affected. This means, however, that the insurance company will pay nothing to have the car fixed. Some policies may offer options whereby the company will pay a portion of the cost to repair a vehicle, even if it is over its black book value, but clients should discuss that with their provider prior to an accident occurring, rather than having to deal with it once a crisis arrives.

While a total loss can be devastating to a car owner, knowing what it is and how it works in the insurance world can help limit its impact.