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Recouping expenses after your car is totaled

Having a car insurance company declare your vehicle a total loss after a crash might cause you to lose sleep 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. Now, that likely isn't enough to pay for a brand new version of the vehicle you just lost. Instead, it's what your car is worth at the time of the crash.

Also, insurers may be responsible for other costs associated with purchasing a new vehicle, such as sales tax, title and vehicle registration.

Thirty-four states require car insurance companies pay 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 upfront. 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.

There is often a 30-day time limit for requirement reimbursement for these costs from the time you purchase your replacement vehicle. So, it's important to make your request quickly if you live in a state that requires auto insurance companies to reimburse you for these costs.

Your auto insurance company vs. theirs

Don't fret if your state doesn't require auto insurance companies to reimburse you for sales tax. Public policy is generally on your side anyways.

For instance, 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. That includes 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.

Are you first party or third party?

Drivers unfamiliar with the auto insurance claims process may not know the difference between first party and third party. Here's the difference.

What's considered first or third party in an insurance claim depends on who's filing the claim and who's at fault. If you're filing a claim with your own insurance company, that's a first-party claim. You should file a first-party insurance claim if you're at fault.

If you're filing a claim with another insurer, such as the other driver's insurance, then it's a third-party claim.

States that have laws requiring insurance companies to pay for sales tax may or may not have regulations about third-party insurers. You can see which states with sales tax reimbursement laws also have third-party regulations on the list on this page.

Sometimes you have to ask

State laws vary on the topic of recouping expenses after your car is totaled. There are states that require car insurance companies for both first party and third party. Others only pertain to the first party. Some don't have any provisions at all.

Then there are the differences between the processes. For instance, states like Missouri and Ohio don't require car insurance companies to pay sales tax, title, and registration costs in total-loss settlements upfront. 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.

Shop around for car insurance

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. When looking to change insurers, make sure to get quotes from multiple companies for the same policy. Compare possible discounts and see which company would give you the best rate while also providing you the most protection.



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

StateCitationApplies to third-party claims?
AlabamaAL ADC 482-1-125-.08No
AlaskaAK Bulletin 93-8; 3 AK ADC 26.080No
ArizonaAZ ADC R20-6-801Yes
ArkansasAR Rule 43-10; AR ST s 23-89-11; AR Bulletin 2-2002Yes
California10 CA ADC s2695.8Yes
ColoradoCO ST s10-4-639Yes
ConnecticutCT ST s38a-816No
FloridaF.S.A. 626.9743Yes
GeorgiaGA ADC 120-2-54-.06No
HawaiiHI ST s431:10C-312No
Illinois50 Ill. Adm. Code 919.80No
IndianaIN Bulletin 82Yes
IowaA.D.C. 191-15.43(507B)No
KansasKS ADC s40-1-34Yes
KentuckyKY Bulletin 81-DM-007; 806 KAR ADC 12:095Yes
MaineME Bulletin 194; ME TI 24A s2907No
MarylandMD Ins Order 11-25-80Yes
MinnesotaMN ST s72A.201No
MississippiMS Bulletin 2007-4Yes
NebraskaNE Bulletin CB-49Yes
NevadaNVADC 686A.680No
New JerseyNJ ADC 11:3-10.4No
New YorkNY Gen Counsel Op 3-12-2001 11 NYCRR 216.6Yes
OhioOH ADC 3901-1-54Yes
OklahomaOK ST T.36 s1250.8No
OregonOR ADC 836-080-0240Yes
Pennsylvania31 PA ADC s62.3Yes
Puerto RicoRule XLVII 7Yes
Rhode IslandR.I. Code R. § 11-5-73:8Yes
TennesseeTN Bulletin 9-1-89Yes
UtahUT ADC R590-190-11Yes
VermontVT Bulletin 58; VT ADC Ins 79-2Yes
VirginiaVA Ins Order 11607Yes
WashingtonWA Bulletin 89-3; WA ADC 284-30-3907Yes
West VirginiaWV ADC 114-14-7; WV ST s33-6-33Yes
Wisconsin12/97 Insurance Commissioner NewsletterNo
Source: Property Casualty Insurers Association of America, as well as state insurance laws and state insurance commissions.

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1 Responses to "Recouping expenses after your car is totaled"
  1. Juli

    I'm frustrated with the haggling with 3rd party reimbursement and how they value my vehicle. I've looked up NADA, Edmunds, Kelly Blue Book and they all give higher value for replacing through a dealer and also a private party. The insurance company only wants to pay actual cash value and not greater than private party. My other frustration is my brand new 45 day old Michelin tires which cost $653. They only want to give me half. First they offered $135, which is not enough for one tire! My vehicle is limited on comparable due to extremely low mileage and extras. If their client is at fault, shouldn't they pay replacement value especially for tires?!


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