Did my insurance company scam me when they paid less for my car than I saw it selling for at a used car dealership later?

Question

Tree fell on my car, windshield smashed. Other than that I can drive it, I can still get in and drive it around (obviously with limited visibility) had to wear extra protection so I wouldn't get cut. Other than a few dents it looks good to me.

Insurance guy comes around and tells me my car is "totaled" and they won't pay for repairs but they will pay for a replacement car. I was going ballistic, but I couldn't pay for repairs at that time so what else was I going to do? Insurance was Geico.

Long story short I bought my car for 25k 5 years ago and they gave me 13.5k now. Then some how by magic I see my car up for sale at a dealership much later up for 18k. I know it has to be my car, it's identical and the mileage is around the same as well.

What the hell? Is that some sort of insurance company tactic, because it feels like a scam to me. Why not give me a few thousand dollars for repairs instead? Anyway hindsight is 20/20, I should've known better.

Just wondering what you think about this.

Answer 1

It does not sound like a scam to me, and actually quite normal.

Assuming you did not overpay for the car, receiving 50% of the purchase price for a 5 year old car is pretty generous. If you actually paid 25K, that would include sales tax and licensing fees which are not covered in the event of a totaled car. So really that is a good settlement in most cases.

Settlements can often be increased by working with the adjuster with certain circumstances. For example if the tires were pretty new you can often increase the settlement amount by some pro-rated value based on the purchase price.

While you cite the windshield being damaged, the frame of the windshield may have been bent which would have cost the insurance company a lot to fix. They may have totaled the car to avoid liability, which sounds reasonable.

Once a car is totaled the insurance company will sell the car for salvage. This is typically in the $500 range. What happens then is beyond the insurance company's control.

You can verify this is your car by checking the vin numbers.

A junk yard may have bought the car from the insurance company, repaired it, and then sold it to a car dealership. That car dealership has to sell the car with a salvage title. Someone may be willing to pay 18K for it.

I do not know why you say "hindsight is 20/20". I am not sure what you would have done differently. In fact, if I was in your shoes, I would be happy with the settlement.

In the end, it is important to understand that cars cost a lot to own. It is very easy to lose significant wealth on the ownership of a car. Here you hit on several factors that causes one to lose money. First and foremost is depreciation. Second is replacement and the costs associated with that (finding a car, paying taxes and licensing all over again, dealing with car salesmen). If you had a relatively full tank of gas, that cost you about $40 alone!

Answer 2

The company is supposed to "make you whole". Since they decided the car was not worth repairing, they should have given you enough money to buy a comparable car of the same age and wear & tear. (not counting the effects of the insured accident).

It sounds like they gave you printed "Blue Book" values based on the average market value of the car. However, there are actually 3 "Blue Book" values:

• What a dealer will pay a citizen for their car
• What the car typically goes for in citizen-citizen private sales
• What a dealer will typically sell a car for.

And there can be a large spread - as much as 20% - between each number.

Further, COVID greatly disrupted the world supply chain, and most automakers implemented Just In Time improperly, so new car deliveries are a disaster. This has caused an unusual "spike" in car prices - new and used.

Given the car value spike, I'm not surprised somebody fixed up that salvage car, probably doing work considerably below insurance company standard.

So you are comparing two different things: The "normal, private sale" price the insurer should have paid you... versus the "dealer sell price + COVID markup" price you see at the dealer today.

I wouldn't worry about it. I would get out there and buy a replacement car, either the same model year as you had before in similar condition, or something else that suits your fancy.

Answer 3

The only possibility of scam here is if the car being sold at the dealer is indeed your old car and it does NOT have a salvage or rebuilt title.

When a vehicle is "totaled" you have the option to sell the vehicle to the insurance company in return for an agreed upon payoff. You received that $13.5K and you presumably gave them the title. The insurance company is not in the business of rebuilding cars so they sell them to outfits that do and that is almost certainly what happened here.

Once the car was restored it was likely sold at auction to the dealer who has now placed it on their lot. In nearly all cases, however, a "totaled" vehicle must be flagged as "salvage" or "rebuilt" so that the buyer knows that this was totaled at one time or another. In most US states, making the "salvage" flag disappear is a crime. Once it's there it should stay there.

You did not have to "sell" the vehicle to the insurance company and you could have negotiated another deal that allowed you to keep the car in return for a different payout. Often something like the $13.5K - the salvage value would be the case. Then you get the money and the wrecked car and NO salvage title. You can fix your car, have it fixed, drive it like it is, whatever you want. It's all yours.

Generally insurance companies want to settle quickly and most insured parties want to just put it behind them as soon as possible. Likely this is what happened in your case, they did not necessarily point out all your options although I suspect they were clearly spelled out in your settlement agreement. You did read the fine print, right??

At this point the deal is done. You got the money, they got the car, it's been fixed and it's now for sale. You could buy it if you want but you'd have to pay what the dealer is asking or what you can negotiate it down to. But it's no longer your car and likely no scam has occurred.

On the idea that a "few thousand dollars" would have done the trick is a common misconception. You'd be surprised how little damage it takes to get into the "totaled" category. All insurance companies have their own rules on this but let's say if the estimated repair cost exceeds 60% of the value of the car, they deem it totaled. You could have requested more details on how they arrived at their numbers but you appear to have skipped doing that.

Answer 4

Being skeptical of your insurance company is not unwise, they exist to turn a profit, not to make your life easier. However you should not implitictly trust a used car dealer either.

Dealers often inflate sticker prices so that they can offer generous trade-in payments on clunkers, and "free" finance, ask the dealer what the cash price is without a trade-in.

Expect a figure much closer to what you were paid.

Answer 5

Long story short I bought my car for 25k 5 years ago and they gave me 13.5k now.

You received more than 50% of your purchase price for a 5 year old car? You only got scammed if the KBB value was significantly higher.

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I see my car up for sale at a dealership much later up for 18k.

Yes, always grossly haggle a used car's price when you're shopping around.

If you can confirm that this is indeed your car then you can consider offering the dealer $5k for it but be prepared to be denied since they know they can get much more in the current market especially if they fixed the cosmetic issues.

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If you think your car was good enough to drive then you could have talked to your insurance to deduct the salvage price from the payout and keep your vehicle. I know more than one person that has done this.

This seems to be main salt in your wound since you were not aware that you can do this.

Answer 6

This is what often happens to "totaled" cars. Totaled just means repairs will cost more than the car is worth. It's then sold to someplace that can do the repairs necessary that then sells it to a dealer that either they work with all the time or another one that is an arm of their business.

In order to make it legal, they will have to have it inspected and from then on it will have a "Salvaged Title," which makes it harder to sell.

(I was once rear ended, and pushed into the car in front of me. The car was almost drive able, but really needed repairs, especially in the front. The ins co told me it would be totaled, and then they sent me a 8 page report on how they determined the value of the car. It was based on several other of the same model and year cars being sold in and around my area, some with photos. It showed the condition of these cars, as well as their mileage. A couple of them I was able to find on line. They also told me the amount they would pay me if I wanted to keep the car and explained that if I fixed it it's have a salvage title. They offered me easily what I thought it was worth before the accident.)

Answer 7

Insurance company scammed you by not clearly explaining that you could take something like 75-90% of the "totaled" value they were offering without handing the car title over to them. You could then have taken your $10000, spent $250 replacing the windshield, and pocketed the $9750.

Of course that's assuming there wasn't other damage that actually needed to be repaired. If so, the cost might have run up to a few thousand, but you'd still come out ahead.

Also you could have fought with them over the value of the car to get the initial offer up a good ways before declining to hand the title over. Then you would have come out even more ahead.

Answer 8

Did my insurance company scam me when they paid less for my car than I saw it selling for at a used car dealership later?

No.

When a vehicle is damaged in a manner covered by its insurance policy, the very first thing that happens is that the insurance company assesses the vehicle to determine whether repairing and returning it to you is going to be worth it to them, based on your policy's value.

If the answer is no, the insurer deems the car as "totalled" and auctions it off for whatever they can get for it. "Totalled" therefore does not mean the car is undriveable or only fit for scrap, it's merely a value judgement made by the insurer.

What happened in your case - and what happens in many cases - is that someone viewing the auction for your former vehicle saw it, determined it could probably be repaired, and bought it. They were then indeed able to repair it, after which they sold it to the used car dealership.

It's important to understand that the person who bought your totalled car was taking a calculated risk. If they're correct, and the repairs are relatively minor, they will make money by repairing it and selling it on - as seems to have happened in your case.

But - and here's the kicker - if they guessed wrong, they will lose money on your vehicle. And there's nothing protecting them in the case that happens. Since the only thing the buyer has to go on when viewing the car at auction is a short description and images (since most vehicle auctions are conducted online nowadays), there is always a chance that there is something catastrophically wrong with the vehicle that they simply won't know until they get it into their shop and tear it down. A good example is the vehicle's frame - it's the most vital part and as such damage to it is often fatal, but it's also the most difficult to properly inspect.

Additionally, being deemed totalled has significant implications for a vehicle in terms of selling it on. A totalled vehicle is technically supposed to end up in a scrapyard, so if someone does end up repairing it, the vehicle actually has to be sold differently (salvage title) - prospective buyers are required to be informed that it was totalled, and as such there may be (potentially dangerous) defects that the repairers didn't discover.

For the insurer, that potential for undiscovered dangerous defects is a massive risk. If they repair your vehicle and return it to you, and you end up in an accident where it can be proven that an issue from the previous accident and/or the repairs conducted for said accident caused you injury or death, the insurer will be on the hook for a potentially crippling lawsuit.

At the end of the day, insurers are risk-averse. That's why they don't do a particularly thorough assessment of the vehicles they deal with, certainly not to the point of stripping the vehicle down. Their assessment is very much a "is this going to be quick and cheap and safe to repair?", and if not the vehicle is going to end up as totalled.

Does this mean insurers end up marking many perfectly repairable vehicles as totalled? Yes, and that hurts their bank balance. But since every one of their policies has a certain amount of fat built in to cover the scenario of totalling the covered vehicle, and the number of people who have insurance but never claim is large enough, it makes more monetary sense for the insurer to total "good" cars than it does for them to risk trying to repair them.