Car Insurance and the Totaled Car

A friend of a friend called me a couple of weeks ago who wanted my professional opinion.  Our mutual friend suggested he call me as he’d been in an accident a couple of months ago and was not happy with the way his claim was being handled.  He’s not a client but wanted to know what his options were.

It turns out this person had purchased “full coverage” car insurance from one of those neighborhood places that advertises liability coverage for as little as $29.95 a month.  The policy was for the brand new 2012 Ford Focus he’d purchased.  Apparently he loved the car as he drove it everywhere and put just over 100,000 miles on it in the two years he owned it.

A couple of months ago he was driving on LBJ Freeway in Dallas and decided to pull onto the shoulder to send a text message.  A person driving a truck hit his car while it was parked and sent it across the freeway and into the concrete lane divider.  Luckily neither he nor his kids who were in the car with him were badly hurt but they were pretty bruised and banged up and he suffered a concussion.

After my friend’s friend outlined what had happened, he went on to ask three questions including:

  • Did he have to accept the valuation offered on his car from the insurance company of the person that hit him?
  • Was there a different way to handle the claim process other than him working directly with the other person’s insurance company?
  • If he accepted the offer, would the claim be closed as he was still having medical follow up visits for he and the kids?

Vehicle valuation is one of the most difficult items for anyone whose car, truck, or SUV has been totaled because the value on a car insurance claim is paid on a depreciated or actual cash value basis and everyone believes their car is worth more.  Claims adjusters establish a value of the vehicle if it were in perfect condition and then subtract value for all scratches, stains, dings, chips in a windshield, and tears in the carpet, upholstery or dash.  Everything that can be used to lower its value is, including mileage.

Based on the mileage this person accumulated on the vehicle in 2 short years, the other person’s insurance company made an initial offer that was about $5,000 less than what he owed on the car.  We determined he did not have gap or new car replacement coverage on his policy or through the dealership.  This means he’ll continue to make payments to the loan company for a totaled car.  I suggested he pull all repair bills and submit them to help increase his vehicle’s value, however since no repairs were performed on the car, this strategy didn’t help.

We moved to discussing his options on handling the insurance claim.  I suggested in cases like this, he may get a better settlement by working through his car insurance company and having them pursue the settlement for him.  There is a potential risk with this approach as there’s no guarantee they will come back with a better car valuation but they are at least more experienced in dealing with other company’s claims adjusters than he is.  Pursuing this option means he’d have to file a claim with his company and pay the collision deductible until the claim were settled and he wasn’t sure if he’d do that or not.

The other course he could take is hire a lawyer and have them pursue damages from the other insurance company.  In order to do this, he would either have to pay the lawyer directly, which he couldn’t afford, or he would have to determine whether they would take the case on a contingency basis.  If he carried personal injury protection coverage on his insurance policy, this could be used to help with that.

The next area we discussed was the issue of how the claim should be managed if he accepted the other insurance company’s offer.  I suggested that he not close the medical claim until he was satisfied neither he nor his kids would be impacted for the first year after the accident.  If he needed to close the claim on the property damage, then do so, but make sure he and his kids could receive medical care should it be needed during the first year.

Given the discussion I’d had with my friend’s friend, I believe that there are a couple of suggestions each of us should consider.

  • If you’re buying a new vehicle, get GAP insurance.  This will protect you when you’re upside down on the loan and owe more than the vehicle is worth.
  • Get Personal Injury Protection or PIP coverage.  This can be used to pay medical deductibles, as well as lost wages, hiring a lawyer, or a lot of other uses.
  • Pick an insurance agent who’ll explain what the policy covers or not and that’s willing to give advice based on their experience.  You don’t have to do what they say, but you’ll at least have heard a good explanation of coverage and have the information you need to make an informed decision.
  • Pick a company that will fight for you.  There are plenty of good companies that will go the distance to take care of their clients and that’s worth it if you’re ever in a situation similar to this.

What’s been your experience?  Share your experiences, questions, and suggestions with me in the comments section of our blog or on our Facebook and Google + pages.  I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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