Salvage Title Used Car And Insurance: What To Know

Along with all the regular complexities of purchasing and ensuring a used vehicle, there's now a growing debate about the reality of buying a car with a salvage title and getting it on the road with salvage title insurance. This sub-topic around the specific buying option has created some controversy, and there are a lot of opinions out there about the best practices for dealing with a vehicle that has been branded with a salvage title.

What Is a Salvage Title?

A used vehicle with a “salvage title” or “rebuilt title” has been previously damaged as a result of a collision, fire damage, flooding, or some other major calamity. Some insurers and other parties set standards for damage at a percentage of the car's value. The requirements for salvage titles differ by state, but generally, vehicles branded as rebuilt have to be retitled with a salvage title that marks the vehicle as being previously refurbished.

It’s difficult to figure out how to ensure and drive a car with a salvage title because of different state standards. Also, because it's such an umbrella term, it's often hard for buyers and others to figure out exactly why the salvage title applies, and whether a car has been wrecked, stolen, or any combination of the above.

State rules

As mentioned, the specific standards for getting a salvage title on a car vary from state to state. For instance, in Michigan, the birthplace of some major American automakers, the state police have to sign off on salvage title vehicles, as specified in the state’s website:(http://www.michigan.gov/sos/0,1607,7-127-1585_1587_1588-76323--,00.html).

Coverage Problems

Many owners of salvage title cars report that auto insurers do not want to cover their vehicles at all. A lot of this wariness comes from the fact that it's difficult for the insurer to value the salvage title car. Big Blue book companies like Kelley don't provide specific values for salvage title vehicles. In general, the refurbished nature of a salvage title car often makes its overall value of complete mystery. For this reason, it can be hard to secure auto insurance coverage.

Premiums vs. Claim Payments

Another problem with ensuring salvage title cars is that the driver might be able to get normal premium rates (rates that would be comparable to a vehicle without a salvage title), but he or she may encounter a problem later on in the case of a claim. The whole point of paying auto insurance premiums is to be able to recoup the value of a vehicle in the case of an accident. However, if a driver did not communicate properly with the insurer prior to a claim, he or she may find that the claim payment is so low that it's almost insignificant. That's because the insurer calculated premiums according to Blue Book value, but calculated the claim at a salvage title value, where the insurer saw the salvage title car to be nearly worthless because of its prior damage.

Keeping ‘em Honest

The best way to prevent misunderstandings in claim situations is for a driver to be upfront with their insurer in the first place. If you're going to acquire insurance on a salvage title vehicle, make sure that the insurer has agreed in writing to a specific value for that vehicle. If they're not going to agree to pay its value on a claim, it may be possible to get dramatically reduced premium prices that correspond to their theoretical claim payment. It's all about talking to insurance representatives up front, before the deal is inked.

Keeping the above considerations in mind can help drivers who may want to invest in a salvage title vehicle to save some money on the purchase price.