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Recouping expenses after your car is totaled

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.

States that require sales tax be paid as part of total-loss settlements

State Citation Applies to third-party claims?
Alabama AL ADC 482-1-125-.08 No
Alaska AK Bulletin 93-8; 3 AK ADC 26.080 No
Arizona AZ ADC R20-6-801 No
Arkansas AR Rule 43-10; AR ST s 23-89-11; AR Bulletin 2-2002 No
California 10 CA ADC s2695.8 No
Colorado CO ST s10-4-639 Yes
Connecticut CT ST s38a-816 Yes
Florida FL Information Bulletin 82-224 Yes
Georgia GA ADC 120-2-54-.06 No
Hawaii HI ST s431:10C-312 No
Illinois 50 Ill. Adm. Code 919.80 No
Indiana IN Bulletin 82 Yes
Kansas KS ADC s40-1-34 Yes
Kentucky KY Bulletin 81-DM-007; 806 KAR ADC 12:095 Yes
Maine ME Bulletin 194; ME TI 24A s2907 No
Maryland MD Ins Order 11-25-80 Yes
Minnesota MN ST s72A.201 No
Mississippi MS Bulletin 2007-4 Yes
Nebraska NE Bulletin CB-49 Yes
Nevada NVADC 686A.680 No
New Jersey NJ ADC 11:3-10.4 No
New York NY Gen Counsel Op 3-12-2001 11 NYCRR 216.6 Yes
Ohio OH ADC 3901-1-54 Yes
Oklahoma OK ST T.36 s1250.8 No
Oregon OR ADC 836-080-0240 Yes
Pennsylvania 31 PA ADC s62.3 Yes
Puerto Rico Rule XLVII 7 Yes
Tennessee TN Bulletin 9-1-89 Yes
Utah UT ADC R590-190-11 Yes
Vermont VT Bulletin 58; VT ADC Ins 79-2 Yes
Virginia VA Ins Order 11607 Yes
Washington WA Bulletin 89-3; WA ADC 284-30-3907 Yes
West Virginia WV ADC 114-14-7; WV ST s33-6-33 Yes
Wisconsin 12/97 Insurance Commissioner Newsletter No
Source: Property Casualty Insurers Association of America

Thirty-four 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.

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.

If you're not totally satisfied with your auto insurer, it's probably time to review Insure.com's annual ranking of the best auto insurance companies and see if there's a better match for you.

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