When an auto insurance
company declares your vehicle a total loss, you might lose some hair
because of the hassle, but you shouldn't lose your shirt. Auto insurers
are responsible for paying the actual cash value or market value of
your vehicle so you can replace it with a similar one, but that's only
half the story. They might also be responsible for the other costs that
come with purchasing a new vehicle, such as sales tax, title and
vehicle registration.
Thirty-two states require auto insurance companies to pay for the sales tax after you replace your crashed vehicle with a new or used one (see list).
However, that doesn't necessarily mean insurers in those states are
going to offer to pay sales tax up front, nor does it mean insurers in
states that don't require those reimbursements will refuse to pay.
That's why it's important to ask the insurer to reimburse you, even if
the state in which you live does not require it.
If
you live in a state that requires insurers to reimburse you for these
costs, it's important to make your request quickly. A number of states
have a 30-day time limit for you to request reimbursement for these
costs from the time that you purchase your replacement vehicle.
If your state does not require auto insurers to reimburse you for sales
tax costs when you purchase a car with a total-loss settlement, and
you're dealing with another person's insurer, public policy is
generally on your side, whether or not your state law reuqires it. If
another motorist is at fault in the crash, public policy dictates that
you can collect from that person's insurer all costs you incur directly
because of the crash, including the costs associated with purchasing a
new car after your old one is totaled.
The
situation is much the same if you make a claim under your own insurance
policy and your state doesn't require insurers to reimburse for those
extra costs. Most collision and comprehensive auto insurance
policies limit your insurer's liability to the car's actual cash value
or the cost to repair or replace it. Policy language often is
ambiguous, which means the benefit of the doubt goes to policyholders,
according to Steve Ryan, a Scottsdale, Ariz.-based attorney who
specializes in total losses.
Although he
hesitates to say a court would never rule that an insurer does not owe
its policyholder for sales tax, title, and registration costs, Ryan
says it's highly unlikely it would.
In
states that reimburse you for sales tax, insurers will reimburse you
for those costs on the total loss settlement for your original vehicle,
not your newer vehicle. For example, let's say you total an old Saturn
and receive $5,000 from your insurer for it. If you use that money to
purchase a Honda Accord for $20,000, your insurance company would pay
you sales tax on the $5,000, not the $20,000.
Some states, such as Missouri and Ohio, don't require insurers to pay
sales tax, title, and registration costs in total-loss settlements up
front. In Ohio, you have to submit your sales tax, title and
registration costs to the insurer within 30 days after you purchase
your new car. In Missouri, the insurer will give you an affidavit to
fill out and file with the state's revenue department so you can forego
paying the sales tax on your newly purchased vehicle.
Other
states, such as Arizona, Kansas, and Minnesota, require insurers to
include future sales tax as part of the total-loss settlement check.
Under this circumstance, the insurer will calculate the sales tax as a
percentage of the total settlement.
In both
situations, it's important to ask for the reimbursements because, as
one industry source says, "Some insurers will pay [the extra costs] if
asked. Very few will pay [them] up front."
