You aren't so happy, though, when you climb out and survey the damage. Your car--that trusty Honda Accord--is a goner. The front end looks like an elephant sat on it.
As if you weren't feeling cheery enough, the insurance adjuster calls a few days later and tells you that your car is a "total loss." This is the news you were dreading...
Welcome to the School of Hard Knocks
When your car is totaled in an accident, it's usually a lose-lose situation. Not only will the insurance company try to give you as little money as possible, but you'll also have to spend time (and often additional money) shopping for a replacement car.
However, you don't have to let a wrecked car wreck your life. With a little homework and smart negotiation, you can ensure that you get a fair settlement.
How a Claim Works
An insurance claim for an auto accident will result in a property-damage settlement and--if injuries are involved--a personal-injury settlement. These two kinds of settlements are calculated separately. This article deals only with property-damage settlements. (For advice on settling personal injury claims, visit How to Negotiate a Fair Personal Injury Settlement.)
After the accident, the insurance adjuster will examine the damage to you car and decide whether it can be repaired or whether it's headed for the junkyard. If it can be repaired, you'll go through a process of obtaining estimates from repair shops. If it's a total loss, the adjuster will offer you a settlement (a sum of money) for your car.
Notwithstanding all those touchy-feely insurance commercials, you and your adjuster will be at crossed purposes. You want him to write a big check; he wants to write a little one--it's as simple as that. (One of the ways insurance companies make money is by maximizing the premiums they collect and minimizing the settlements they pay out.)
What Is a "Total Loss"?
Here's how it works: When the cost of repairing a wrecked car exceeds 70% of its value, insurance companies will generally "total" the car rather than pay to have it fixed. In other words, they will buy the car from you and then sell it for scrap. If you own an older car (i.e. one with a relatively low book value), chances are that your car will be totaled in any significant accident.
Who Determines What the Car Is Worth?
The insurance adjuster will determine a value for your car. However, used-car values aren't carved in stone, and neither is the adjuster's figure. That's where your homework and smart negotiation will come into play.
If, in the end, you're unable to arrive at a mutually agreeable figure, you can always sue the insurance company, but that's expensive and time-consuming for both parties, and neither you nor the adjuster really wants to go to court.
How Is the Car's Value Determined?
In deciding how much to pay you for your car, the insurance company considers only the vehicle's current market value in your geographical region. They do not take into account the car's value to you--your emotional attachment to it, the peace of mind you enjoyed from knowing the car's history, or the time and effort you put into regular repair and maintenance. (Yep--more hard knocks.)
The insurance adjuster will begin by consulting a used-car price guide. The three top price guides are published by the National Automobile Dealers Association (NADA) (http://www.nadaguides.com/), Kelley Blue Book (http://www.kbb.com/), and Edmunds Used Car Prices & Rating (http://www.edmunds.com/). Most insurance companies prefer NADA.
The adjuster may also assemble a list of comparables--cars like yours that are currently being offered for sale in your area. The advertised prices for these comparables will be used to establish a value for your car by means of (you guessed it) comparison.
Do Your Homework
Before you meet with the adjuster, you should do your own research on your car's market value and have in mind a settlement amount that's acceptable to you. You'll basically be using the same approach as the adjuster.
Start with the price-guides (NADA, Kelley Blue Book, and Edmunds). All three offer free value quotes on their websites. Be sure to print out the values so you'll have documentation to show the adjuster. (Note: The price guides will provide you with both trade-in values and retail values. The settlement will be based on a retail value, which is the same thing as a "market value.")
Chances are, your research will turn up a range of values. Take the car in our example--a Honda Accord EX 2-Door Coupe with 100,000 miles, in excellent condition (before the wreck, that is.)
On September 19, a price-guide search produced the following average market values:
- Edmunds Used Car Prices & Rating: $6,675
- Kelley Blue Book: $6,075
- NADA: $6,250 ($7,325 high retail value)
As you can see, the values differ by as much as $600 (or $1,250, if you take into account NADA's high retail figure).
Chances are, the insurance adjuster will offer you a settlement near the low end of the range. Your job is to convince him to settle near the high end of the range.
Make a list of any factors that would increase the value of your car beyond "average" retail, such as low mileage, aftermarket upgrades and add-ons (such as a new stereo system), and non-standard options. (The price guides will specify which options are standard for your make, model, and year.)
Next, compile your own list of comparables. Start with your local newspaper's classified ads. Many newspapers have websites that will allow you to search the classified ads of many papers in your region or state. You may also consult local car-trader magazines, which can be purchased at most gas stations and convenience stores.
When possible, find cars exactly like yours--same make, model, and year, with comparable mileage and condition. You're looking for the most expensive ones you can find. Once you've identified a handful of such cars, clip or print the ads so you can show them to the adjuster.
You probably won't be able to find cars identical to your own, but come as close as you can. The more accurate the comparables, the stronger your negotiating position.
Car values often vary by region, and you want an insurance settlement that will allow you to replace your car without your having to travel hundreds of miles to find one at the right price.
Ideally, your comparables will exceed the price-guide values. When you negotiate with the adjuster, your argument will go something like this: "I know the NADA guide says my Honda is worth $6,250, but as you can see from my comparables, I can't replace the car here in Bloomington for any less than $7,000."
Go back to the newspaper website and check your comparables periodically to see if any of them have sold. Documenting such sales makes your case stronger. The adjuster may look at one of your comparables and say, "That's not a realistic comp. That guy may be asking $8,000 for his 1991 Accord, but he'll never get that much." And then you can smile and say, "Oh, but he did."
Finally, call your local Department of Motor Vehicles and ask what costs are associated with the purchase of a car. Typical costs include:
- A title transfer fee.
- A license-plate transfer fee.
- An emissions test fee (if they're required in your state).
- Sales tax.
You'll want the insurance settlement to cover these fees and taxes in addition to the value of your car.
The insurance company is also obliged to supply you with a rental car until you can buy a replacement car. The first time you speak with the adjuster, ask which rental company they use, and how to arrange payment. In general, you can expect the insurance company to provide a car for a period beginning on the day of the accident and lasting 7-10 days after you receive the settlement, which should give you enough time to buy another car. Usually, you're entitled to a rental car comparable in size to your own.
After you've settled the claim and returned the rental car, it's a good idea to check back with the adjuster to make sure he's taken care of the billing. If he forget, the rental-car company will try to stick you with the bill.
A Word about Adjusters
Before you negotiate with an adjuster, it's helpful to have an understanding of his job. Like most of us, adjusters have bosses, and those bosses want the adjuster to settle claims as quickly and cheaply as possible. An adjuster who goes around handing out high settlements will soon find himself in the unemployment line.
In the long run, the adjuster's goal is to minimize the amount of money he pays out to claimants. However, the average adjuster, faced with a constant stream of claims, will end up over-paying on some claims and under-paying on others.
It stands to reason, then, that an adjuster is more likely to over-pay on a small claim than on a large claim. In other words, if you're negotiating on a $2,000 car instead of a $20,000 car, the adjuster may be more flexible.
Also, most adjusters are authorized to write a check up to a certain amount with no questions asked from their supervisor. This amount depends upon the adjuster. More experienced adjusters will generally be allowed to write bigger checks without having to consult their supervisors for approval.
It's also worth noting that adjusters have more leeway in personal-injury settlements than in property-damage settlements. On a $5,000 car, for instance, the adjuster may have only $500 wiggle-room to negotiate. If you're shooting for a figure well above market value, you'll probably be out of luck.
Tips for Negotiating with Adjusters
At some point--either in person or over the phone--the adjuster will offer you a settlement amount for your car. By now, you've done your homework and arrived at a settlement figure you're willing to accept. If the adjuster's figure is less, the negotiation process begins. Follow these tips to insure that you get a fair settlement.
- First of all, be calm and polite at all times. Insurance adjusters deal with angry people all day long. If you're rude to the adjuster, he can play hardball with you and not feel bad about it. Let the adjuster see you for what you are--a nice, honest person who's just trying to get a fair shake.
- Let the adjuster make the first offer. You don't want to say, "I'll take $6,000 and not a penny less!" because for all you know, the adjuster was prepared to pay $6,500.
- If the adjuster offers you a low settlement, politely ask him how he arrived at his figure. If he used one of the price guides, have your (higher) figures from the other price guides handy.
- If the adjuster compiled a list of comparables, ask to see them. Look for weaknesses in his list. Did your car have any options (such automatic transmission or air conditioning) that are missing from his comparables? Are his comparables drawn from a distant region? The argument you're trying to make is that your (higher) comparables are in fact more accurate and applicable than his are.
- When an adjuster does over-pay on a claim (that is, when he ends up paying more than his initial offer), he needs to have some documentation to justify the settlement. By providing him with this documentation yourself (your price-guide research and comparables), you make his job easier, and you demonstrate to him that you are well prepared and well informed (i.e. not some dupe that he'll be able to under-pay).
- If your adjuster makes a low offer and he's unwilling to budge, ask to speak with his supervisor. This, however, should be a last resort--once you go over the adjuster's head, you'll be on his black list.
- AFTER the adjuster has made an offer you find satisfactory, tell him thanks, you'll accept the settlement IF he'll also kick in money to cover sales tax, title transfer, plate transfer, and (if it's required in your state) an emissions test. At this point, he'll be eager to settle the claim and probably give you the additional money (which should be included in the settlement anyway, and he knows it). Also, if you've paid for a rental car out-of-pocket, be sure that's included in the settlement, too.
Comparables - Cars for sale which are used to help establish the value of your (totaled) car by means of comparison.
Insurance adjuster - Insurance company employee who negotiates and settles claims (i.e. the person who writes you the check).
Property-damage settlement - The money an insurance company pays to repair or replace your car, plus additional costs such as a rental car.
Personal-injury settlement - The money an insurance company pays to compensate you for injuries sustained in an accident, including medical bills, lost wages, etc.
Settlement - Sum of money paid to you by the insurance company, usually in the form of a check. Your acceptance of this check constitutes the "settling" of the claim.