Salvage Titles and Car Insurance
For those on super-tight budgets who still need to get around, buying cars with a history of significant damage may be an affordable option. We’re not talking about some dings and scratches here – these are vehicles previously declared as total losses by insurers. “But if they’ve been totaled,” you may ask, “how are they even suitable for resale and use.” The answer is salvage titles. But what are those, and how do they work? Are salvage title vehicles safe, legal and insurable?
What Are Salvage Title Vehicles?
Cars with salvage titles have previously been ruled total losses by insurers. A car is ‘totaled’ when it would cost the insurer more to repair it than simply pay the owner its actual cash value (ACV).
When a car is deemed a total loss, owners are given the option to ‘buy it back’ from the insurer and do what they want with it. If it can be repaired, it can be driven again. And if not, it may still be used for parts or sold to a junkyard. If a totaled car is repaired to a fully functional condition and passes a safety inspection, it can be sold at a discounted price with a salvage title.
Judging a Title By Its Name
Some immediately assume that cars with salvage titles have suffered major damage and are therefore junk. But that’s not always the case. Sometimes even small accidents can total vehicles. For example, if a tree branch falls on a car worth $3,000, it might be totaled even though it doesn’t suffer significant structural damage and is not unsafe to drive. Whether a car is totaled or not really depends on the cost of the repairs as compared to the current value of the car.
If you find a salvage-titled vehicle, consider the type and extent of the damage it suffered. For example, a hail storm can do tons of damage to a car’s body, but likely won’t affect how it runs. Before buying, check local salvage title laws, which vary by state, to make sure you’ll be able to drive and insure it. For example, in Michigan a salvage title car must be inspected by state police before it can be driven.
Most states require sellers to inform buyers of a salvage title car’s status and history. However, you may not want to rely on the seller’s knowledge, memory and integrity alone. You can order a CARFAX report and be certain. All you’ll need is the car’s Vehicle Identification Number (VIN).
Insuring a Salvage Title Vehicle
Obtaining liability insurance for a salvage title vehicle might not be a problem, but getting comprehensive and collision coverage (full coverage) can be. When a vehicle gets a salvage title, it loses 20-40% of its original value. Kelley Blue Book (KBB) automatically rates salvage title vehicles as ‘poor’ and recommends getting a private appraisal. Because it’s difficult for insurers to determine a salvage vehicle’s value, you may be denied full coverage or be denied coverage altogether.
If full coverage is available for your salvage title vehicle, insurers usually require:
- A thorough and detailed mechanical inspection
- Clear, current photos from multiple angles
- Inspection by an insurance professional
- Detailed information and records about damage and repairs
Full coverage may not always be a good value, however, as you might pay more for it than the vehicle is worth. If that’s the case, saving money for deductibles, repairs, or a new car is probably a better move.