If the insurance company adds up the total of your car, it will pay you the vehicle's real cash value (ACV). The actual cash value is how much the car was worth just before the loss. It includes a reduction in the depreciation value, so the ACV will be lower than what you paid for the vehicle, even if it's relatively new. You're already depressed because of your car accident.
Now your car insurance company wants to total your car. This means that the insurance company will pay the market value of your car instead of covering the cost of repairs. Instead of paying for repairs, the insurance company will pay you the actual cash value (ACV) of the vehicle after you have paid your deductible. This is the fair market value of the vehicle at the moment before it was damaged in the accident and includes depreciation.
The actual cash value is not what it will cost you to replace that same vehicle today, that's called replacement value. You could use the refund money and buy a new vehicle. But the money you receive from your insurance company won't be enough to buy the same car you're currently driving. There are also states that don't have laws on the subject, including Idaho, Michigan, Montana, New Hampshire, New Mexico, North Carolina, North Dakota, Wisconsin, and Wyoming.
Some of these states don't have sales taxes. Most car insurance policies limit the insurer's liability to the car's ACV or to the cost of repairing or replacing it. So, if you're in a state without a law, you might not get help with sales tax. However, your insurance company is not required to buy you another car, only to pay you the value before the accident.
Most insurance policies use the Actual Cash Value (ACV) method to determine the amount they will pay for the total vehicle. If you owe more on the loan than the actual cash value of the car, you'll still owe the remaining balance to your lender. It's always best to check with your insurance company before buying a policy without coverage to make sure you know what it covers and what it doesn't. Some Gap policies only cover factory parts, which means that if your loan includes improvements, there may be additional value that Gap insurance doesn't cover.
Also, if there are other things included in your loan, such as an extended warranty, Gap insurance won't cover that payment. A wrecked car doesn't directly affect your credit rating. The answer to this question depends on many factors, including your personal needs. Carefully research and consider any investment that depreciates and earns little or no return.
Make sure you understand exactly what you'll need to do with the car to repair it, how much it will cost, and how long the car should reasonably last after the repair. To get the money from your insurance claim to invest in a replacement car, you would have to owe less than the amount of your loan. If your car is totaled, this means that the insurance company has determined that the damages to repair the vehicle are greater than what the vehicle is worth. Usually, the insurance company pays your lender first and gives you the rest of the repayment money if there is any money left.
Collision insurance pays for the repair or replacement of your car after an accident, so without it, you may have to pay out of pocket to replace the car. Insurance companies consider car repair costs, residual value, and actual cash value when deciding if they should be totaled, along with applicable state law. A car is considered totaled when the cost of repairing it plus its residual value add up to more than what the vehicle was worth immediately before the damage occurred. Leslie Kasperowicz is an insurance expert with four years of direct agency experience and more than a decade creating educational content to help insurance purchasers make informed and confident decisions.
Vehicles start to depreciate rapidly after they leave the parking lot, so even if your car is relatively new, the ACV is likely to be significantly lower than what you paid for the vehicle in the first place. In several states, including California and Florida, insurers are required to pay sales tax on their new vehicle as part of the final settlement. Just keep in mind that you usually have to apply for the refund within 30 days of buying the new car. An insurance company determines the total value of a car by considering factors such as the vehicle's make and model, year, and mileage.
A car can also be considered totaled if the cost of repairs exceeds a certain percentage of the vehicle's value, as dictated by state law. If your car is wrecked because of another driver, your liability insurance is responsible for paying for your totaled vehicle. If you think your insurer's ACV calculation is too low, you must submit a counteroffer that includes your justification for why the car was worth more before it was totaled. .
