Insurance and Salvaged Cars

Wrecked Car

Buying a salvaged vehicle may seem like a good way to get a used car at a reasonable price, but before you buy, there are things you need to know about insurance and salvaged cars.

Salvaged Vehicles

A salvaged vehicle is a car or truck that has been declared a total loss by an insurance company. This will normally occur after a vehicle has either been involved in an accident or in an incident covered under comprehensive insurance, such as vandalism or a flood. When a claim is filed with the insurance company, the company will have an experienced mechanic or assessor prepare an estimate for repairs to the vehicle.

Once the repair estimate is received, it is compared to what is called the actual cash value (ACV) of the vehicle. The ACV is based not on the so-called "Blue Book" value of the car, but is the actual market value of the specific vehicle. This takes into consideration the actual condition of the car as well as its options and mileage.

In general, a car will be totaled if the repair costs will be higher than the ACV of the vehicle. Some states mandate that a vehicle be totaled even if repairs are below the vehicle value if the repair costs reach a specified percentage of the ACV. A vehicle may also be totaled if the insurance company determines that the vehicle cannot be repaired safely, regardless of the cost of repairs.

If a vehicle is declared a total loss, the insurance company will not pay for repairs but instead will make a payment for the ACV up to the policy limits. The insurance company will then take possession of the car and sell it to a licensed salvage dealer. You may be allowed to "retain salvage," which means that after you are paid by the insurance company, you are given the option to buy the car back at the salvaged value.

Titles on Salvaged Vehicles

Although the exact terminology varies from state to state, most states require that the title be flagged in some way if a vehicle has been totaled. In some states, a salvaged or damaged title means that the vehicle can only be sold for parts, and cannot be licensed or legally driven on public streets. In other states, after the vehicle is repaired you may be able to apply for a new title. The vehicle will still be labeled as rebuilt, prior damage, or a similar term, indicating that the car was previously totaled.

Some states require that the vehicle be inspected before a new title can be issued, while others will only issue a new title if the vehicle has been repaired by a shop specially licensed for salvage work. The Department of Motor Vehicles can provide information on the specific requirements in your state.

Issues Regarding Insurance and Salvaged Cars

Although there are many issues to consider with a salvaged vehicle, including concerns about vehicle safety, problems in getting financing, and lower resale value, the primary consideration may be insurance and salvaged cars. Many insurance companies will not accept a salvaged vehicle for any type of coverage, although some companies will make an exception if you are retaining salvage on a vehicle you had covered with them at the time the vehicle was totaled.

Most companies that will issue a policy for a salvaged vehicle will only write liability coverage instead of full coverage. This is in part due to the difficulty of determining an accurate value for the car. ACV for a salvaged vehicle may be as little as 50% of an identical vehicle with a clear title, but there are no generally accepted formulas or resources to make the determination. To qualify for comprehensive or collision coverage, you may need to look into insurance through a specialty insurer that handles what are known as "stated value" vehicles, such as antiques or kit cars. These policies generally will require proof of the value of the car, such as an appraisal from a licensed dealer.

Insurance and Salvaged Cars