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UPDATED: Jul 18, 2017
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Insurance companies don’t sell totaled cars to consumers shopping for cars on a regular basis.
Dealing with the legalities and the industry laws that pertain to selling vehicles as a commercial entity is too much for an insurer that deals primarily in the sale of financial products.
While carriers usually don’t act as car dealers, they do liquidate the salvage vehicles that they have taken ownership of after total loss claims.
Liquidating their salvage vehicles is one way for an insurer to earn some money back after paying out for a damage claim. It’s also an effective way for the company to reduce the costs associated with storing, repairing, moving, and selling cars.
If you’re interested in buying a salvage car so that you can get more car for less money, here’s a buying guide to reference.
If you’re also interested in better and more affordable car insurance, enter your ZIP code above and compare at least three to four policies today!
When do insurance companies total out cars?
Insurance companies always investigate claims when insured property is damaged and in need of repair. The insurance company will pay to fix the vehicle as long as you have the appropriate coverage and the vehicle has at least some value.
Unfortunately, if you damage an older vehicle, even if it’s only a dent, there’s a strong chance it could be totaled.
Technically speaking, a vehicle is declared a total loss when it’s involved in a collision or some other type of loss and the cost to repair the car is greater than the Actual Cash Value of the car in its pre-loss condition.
It doesn’t matter if the vehicle is mangled or it’s fully functional. As long as the estimates are higher than the value, the insurer will “write off” the car and offer a total loss settlement.
When does a car go from total loss to salvaged?
While some people use the terms salvaged and totaled interchangeably, they aren’t always the same.
A salvaged vehicle was once totaled, but a totaled vehicle does not always become a salvaged vehicle.
Understanding the difference can be useful as you’re shopping the market for a salvage car at a low price.
Insurance companies that have priced the cost of repairs and then determined the value of a car that’s been in an accident are the ones responsible for total loss declarations. They handle the paperwork with the DMV and update the title.
After the car is totaled, the car can be rebuilt or repaired. If it’s determined safe to operate, it can then be re-registered and issued a salvage title.
The salvage title represents the fact the car can be driven on public roads again.
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What is a Total Loss Threshold?
Unless you’re going to buy a totaled car at an auction, you’ll probably be purchasing a salvaged car that’s already been repaired.
Most people believe that all of the repair costs and parts have to exceed the car’s market value for the car to be totaled, but that’s not always the case. There are states where there are different total loss rules.
States where the rules are different have what’s called a Total Loss Threshold.
It’s universally believed that all states have a TLT of 100 percent. That’s because 100 percent of the car’s value has to be exceeded before the declaration in most states.
Believe it or not, there are states with TLT’s as low as 50 percent. That means that repairs only have to exceed 50 percent of the car’s value before the car is totaled.
Look for Salvaged Vehicles in States With a Low Total Loss Threshold
If you’re planning to save money buying the car of your dreams, one suggestion would be to do your homework before you narrow your search to cars with salvage titles.
Shoppers who do their homework will find that there are good options out there. It’s smart for consumers who want to buy a salvaged vehicle to shop for their car in states with a low Total Loss Threshold.
If you focus on cars that were titled and insured in a state with a low Total Loss Threshold and that suffered minimal damage, you’ll find a great deal on cars that didn’t really require major repair.
To you, a total loss is a total loss, but not all types of damage are created equal.
Imagine having a car worth $4,000. In a state with a TLT of 50 percent, like Iowa, damage only needs to exceed $2,000 for it to be written off. You could find a car that only requires some bodywork.
Some other states automatically total cars after a flood or a fire, no matter how minor. Here are states with very low TLT formulas:
- Iowa — 50 percent
- Oklahoma — 60 percent
- Nevada — 65 percent
- Arkansas — 70 percent
- Indiana — 70 percent
- Minnesota — 70 percent
- Wisconsin — 70 percent
Decide If You’re Buying at an Auction or at a Dealer
There aren’t many different ways that you can go about purchasing a salvage car from an insurer.
Since insurance companies don’t want to be in the business of selling cars, they don’t sell directly to consumers. The carrier will go through different channels that require less effort and involve less risk.
It’s common for companies to sell mangled wrecks to an auction company or to a junk yard. The auction company will then provide information about the loss to the potential bidders.
The bidder will be responsible for paying auction fees, the final bid, and also fees to get the car to them. You may be able to inspect the vehicle before bidding.
If you don’t want to take on the risk of buying a car that is going to cost more than you expected to repair, you could buy a car from a salvage dealer.
The dealer buys the car from the insurer or at auction and then invests in the car to get it back up and running. After the car is running, the dealer titles the car and then sells it for a profit.
You have to decide which channel you think is best for you.
If you like a project, buying at auction might be best. If you don’t want to deal with the hassle of buying parts and hiring a mechanic, buy from a dealer who has a good reputation in this segment of the market.
Make sure you can insure the salvage car before buying. Get online quotes in minutes and see which carriers have the most lenient rules.
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