Recouping expenses after your car is totaled

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• Last updated: Aug. 7, 2010

When a car insurance company declares your vehicle a total loss after a crash, you might lose some hair because of the hassle. But you shouldn't lose your shirt. Car insurance companies are responsible for paying the actual cash value or market value of your vehicle so you can replace it with a similar one. In addition, they may also be responsible for other costs associated with purchasing a new vehicle, such as sales tax, title and vehicle registration.

Thirty-two states require car 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 your insurance company to reimburse you -- even if the state in which you live does not require it.

If you live in a state that requires auto insurance companies 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.

Your auto insurance company vs. theirs

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 requires 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 incurred directly because of the crash -- including the costs associated with purchasing a new car after your old one is totaled. Also, your car insurance rates should not increase if the accident was not your fault.

The situation is similar if you make a claim under your own insurance policy and your state doesn't require insurers to reimburse you for those extra costs. Most collision and comprehensive car 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, says 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.

Sometimes you have to ask

Some states, such as Missouri and Ohio, don't require car insurance companies 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."

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