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Top 7 Things Car Insurance Companies Won’t Tell You

Dec 11, 2019 | Car Accidents

Even though you pay insurance premiums and expect your insurer to live up to their end of the bargain when you file a claim, insurance companies generally are more concerned with protecting their bottom line than paying you.

Here are seven things car insurance companies won’t tell you:

Infographic showing the 7 things insurance companies try to hide

1. Insurers Can Save Money by Having Your Car Declared a Total Loss

After a car accident that causes severe damage to your vehicle, you may believe you are better off totaling your car so that you can get a new one.

However, this could be bad for you. If your vehicle is totaled, you may recover less than it is worth and less than what it would cost to buy a new one.

On the other hand, totaling your vehicle could be suitable for the insurance company. It may cost less for the company to total your car than to do all the required repairs.

Collision Repair Industry Insight reported that 20 to 22% of cars were totaled after accidents in 2009. This marked an increase from the 16% totaled in 2003, and 7% totaled in 1995.

When Does an Insurance Company Total a Car?

An insurance company will typically total a car when the expected cost of repairing the vehicle is more than its value.

For example, let’s say the repair shop quotes you $5,000 to repair your vehicle after a head-on collision. If the value of your car is only $2,500, the insurance company would more than likely total your car.

When this happens, the insurer may be obligated to compensate you for the total value of your vehicle.

2. The method used to value your car may not be what you’d expect

When a car is totaled, it must be valued by the insurance company to pay out your claim. Edmunds and Kelly Blue Book are the two most used sources for car valuations.

However, your insurer won’t rely on these sources alone. Instead, your insurer typically uses a complex formula to value your vehicle. For instance, the company may consider a market search for similar cars locally or compile a handful of computerized vendor quotes.

Using a combination of formulas gives your insurer more room to manipulate their value estimate. For example, when using a market search or looking for similar vehicles, they may target a lower-cost nearby geographic area (like a nearby suburb if you live in the city) to show that the car could be replaced for less.

You could contest the valuation that the insurer offers you. However, to mount an effective challenge, you should compare other valuations and value the vehicle yourself.

3. Your car may be worth a lot less after it has been repaired.

Unfortunately, even when a vehicle is fully repaired, it loses a significant amount of its value because it was involved in an accident (especially a serious one).

When your insurer pays for your car repairs, you may still lose out because your car is worth less. In some cases, insurance policies may allow you to make a diminished value claim for the loss in value caused by the accident.

However, you cannot claim diminished value. Be sure to check your policy to find out if this is an option for you. It is essential to pay attention to the parts put into your vehicle.

Your insurer may wish to use generic parts or salvage parts rather than new parts from the dealer. Unfortunately, using these old parts can further reduce the value of your vehicle.

4. Your insurance claim could significantly bump up your rates.

There is a lot of mystery surrounding how insurance companies set premium rates. It becomes more unclear when it comes to how the insurer determines the increase in your premiums after an accident.

Many insurers won’t tell you what will happen to your rates after an accident. This can deter some people from reporting an accident to an insurance company, but it shouldn’t.

You take a considerable risk when you choose not to report a crash because your injuries and damage could later turn out to be worse than you initially thought. If you waited and didn’t get checked out by a doctor immediately, your injuries might not be covered.

5. Your friend’s lousy driving can cost you.

You might be worried about making an accident claim only if you were the one driving your vehicle at the time of the crash. However, if you lend a friend your vehicle, and the friend gets into a car crash while driving your car, you need to make an insurance claim.

Your rates are likely to increase as a result of making a claim. You’ll also be out the costs of the deductible for damage, and, if the claim(s) arising from the accident exceeds your insurance policy limits, you could be personally sued.

These are not chances you want to take. So, be sure to avoid lending your car to friends. At the very least, make sure your friends are insured.

6. Your coverage could be dropped or your claim denied

Insurance companies can drop clients under certain circumstances, such as when a client gets involved in a drunk driving accident.

However, insurance companies can’t wait until you need insurance coverage and then deny your claim and drop your policy. If you lied on your insurance application, they could deny your claim.

For example, if someone was living in your home and regularly driving your car, but you told your insurer you were the only driver, this can be considered a material misrepresentation on your part.

If the household member got into an accident and hurt someone, your insurance company very well could deny the claim.

7. Your coverage doesn’t extend to your personal property

Alabama requires that every driver buy liability insurance. However, this doesn’t protect your cars or property. Liability insurance only pays out claims if you are involved in a car accident that causes damage to another vehicle or injures another person.

If you have only liability coverage and total your car, then your vehicle isn’t covered, and neither are any items in your car.

Suppose you have insurance that covers your car in a collision. In that case, it is essential to note that this coverage provides you with financial compensation only if your car is damaged and you need to replace or repair it.

If your property or items of value in the car were damaged due to the auto accident, your insurance company would not cover these losses.

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