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Why Do Insurance Companies Total Cars With Little Damage?

The type of insurance you have, the age of your vehicle, and the extent of damage influence the answer to the question: why do insurance companies total cars with little damage?
why do insurance companies total cars with little damage
Why Do Insurance Companies Total Cars With Little Damage?
Why do insurance companies total cars with little damage? Why is my friend's car totaled but not mine? What happens if it costs more to fix a car than it's worth? Find all your answers here.
In this article

Nothing is wrong with an insurance company totaling your car if it costs more money to fix it than it is worth. But why do insurance companies total cars with little damage? If your vehicle is repairable, the company will not pay more to fix it than their contractual liability to “total” it.

An insurance policy isn’t designed to make you richer. It’s only intended to restore you to your pre-accident condition. That is why collision coverage might not be worth it if your car only sells for $3,000. 

Their most cost-effective option is to pay you for the car and total it out. Let’s learn more about total car value and why insurance companies bear it.

Why do insurance companies total cars with minor damage?

Your insurance company may total your car with minor damage if you have little coverage. If your vehicle is too old or has little market value, it can make repairs much more expensive, even with just a tiny amount of damage. 

If your car is covered by primary insurance and does not cover overall damage, you will have difficulty covering it out of pocket. In many cases, insurance companies will purchase your car at its market value before an accident occurs. The amount of the vehicle will be given to you, and the car will be kept for repair or scrapped after it is repaired. 

If you are looking for good car insurance, you can use Beem to find the best insurance quotes to help you make the right choice. 

When a car is said to be ‘totaled’

Totaled cars are damaged beyond repair or considered to be beyond repair. However, due to the complex systems of today’s cars, it is sometimes difficult to determine whether a vehicle is a total loss.

No amount of money was available to make the car drivable again. Even if someone bought it, it would probably be scrap metal because it would not be worth the investment to make it drivable again. Before determining if a car has been totaled, the insurance company must estimate how much damage was sustained.

What happens if it costs less to fix a car than it’s worth?

When the cost of car repair is less than its value, it is better to repair the car. The insurance company ensures that the value of your vehicle is maintained as per the market. You can negotiate with the insurance company if the payout needs to be higher. You are responsible for proving that your car is worth more than the insurer offers.

What happens if it costs more to fix a car than it’s worth?

As a result of repair costs exceeding a vehicle’s value, it is considered a total loss. Insurance companies decide whether to total a car based on its value and extent of damage. When a vehicle’s repair costs exceed a certain percentage of its value, the insurer declares it a total loss. If the car does not exceed the threshold, the insurer won’t declare it a total loss.

Why is my friend’s car totaled but not mine?

The total loss of care depends on the extent of damage and the type of coverage the owner opted for. If your friend’s car is totaled, he might have more extensive damage than your car, or his insurance coverage might be lower than yours. Other reasons can be that your friends are much older or have a lower market value. 

Conclusion

So, why do insurance companies total cars with little damage? This is because insurance companies have to ensure that the value of your vehicle is maintained as per the market. Your insurance agent might advise you to refrain from purchasing full coverage auto insurance on a vehicle with a high probability of being completely totaled. You should dispute a total loss settlement with the insurance company if you don’t think it is fair and believe the company is taking advantage of you. A drawback of liability-only insurance is that physical damage will not be covered in the case of an insurance claim.

Also, it helps to remember that auto insurance with Beem covers damage to your vehicle, other vehicles or property, and injuries to yourself or others.  

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Author

Picture of Aniket Kulkarni

Aniket Kulkarni

A seasoned Product Manager specializing in car insurance content, Aniket has a passion for simplifying complex insurance concepts. His strategic approach to content development reflects years of experience in the product development industry, coupled with a commitment to providing accurate, reliable information.

Editor

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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