Find the Cheapest Auto Insurance Quotes in Your Area
If you are in the market for a used car, there’s a good chance that you will run across a vehicle that looks great, has low mileage and is selling well below market value. Unfortunately, somewhere in the fine print you’ll probably find the words “salvage title.” Should you jump on the bargain, or keep looking?
These cars may seem like a good deal, since they’re typically priced at 5 to 10% below market value. However, they typically come with a host of red flags, ranging from insurance and financing woes to problems with quality and safety.
Indeed, salvage-title cars are so problematic that we recommend staying away from them entirely. If you’re bound and determined to buy one, though, or even just considering it, here’s a rundown of the problems you may face, along with advice on the best way to find an insurance policy for your newly rebuilt ride.
Salvage Titles Explained
If a vehicle suffers some sort of mishap in which the damage exceeds a certain percentage of the car's value, an insurer will decide that it makes more sense economically to declare it a “total loss” instead of repairing it.
The “value percentage” that triggers such a “totaling” varies by state and insurer, but it’s typically between 70 and 90% of the car’s resale value. (In other words, if repair costs reach or exceed the given percentage, the car will probably be written off as a loss.) In most states, insurers are legally required to declare a “total loss” once a vehicle reaches a certain value threshold that is set by state law. As an example, in Oklahoma, the threshold is 60 percent while in Oregon it’s 80 percent.
Once a vehicle is declared a “total loss” it will be issued a “salvage certificate” which declares that the vehicle cannot be registered, driven or sold in its current condition. At this point, most insurance companies sell the vehicle at auction to rebuilders or salvage yards.
However, if the car is rebuilt, and passes an inspection, which varies by state, it will then be issued a title but the title will indicate that the car is a salvage vehicle.
There are a number of reasons that a vehicle can be totaled, a salvage title does not necessary mean a vehicle was in an accident. Reasons a salvage title is issued:
Flood damage: Floodwaters can do severe damage to the electrical and mechanical systems of a car. Salt water can rust the undercarriage.
Riots: Riots often leave burnt or severely damaged vehicles in their wake. In most such cases, the affected cars are totaled and declared to be total losses.
Hail or windstorm damage: Major hailstorms and tornadoes can severely damage a vehicle, often resulting in a total loss designation.
Stolen vehicles: Car thieves rarely take good care of the cars they joyride. Even if no accident occurs, that abuse can cause such serious damage that the vehicle is written off.
Insuring A Salvage Title Car
While it’s not impossible to insure a salvage-title vehicle, it may be more difficult to do so, especially if you require full coverage, including collision and comprehensive.
Most insurance companies will write a liability policy for a salvage-title car but are often hesitant to extend the policy to include collision and comprehensive. For one, assigning an accurate value to a salvage-title car is challenging. According to Kelley Blue Book (KBB), a salvage-title car is typically worth 20 to 40 percent less than one that has a clean title. If you make a claim on a salvage car, you should be prepared for a much lower “total loss” payout than you might expect from a car that’s “clean.”.
The second reason is safety. Salvage cars often have lurking problems that may or may not be addressed in the process of restoring them to health. Not all rebuilders are honest. Cutting corners to boost profitability is fairly common. Either or both of these realities can result in a vehicle with structural and alignment issues that make it dangerous to drive.
More dangerous still is the fact that some rebuilders use faulty or counterfeit airbags. The California Highway Alliance estimates that 1 in every 25 rebuilt cars has a phony airbag installed.
If you are shopping for a salvage title policy here are a few tips for finding the best coverage:
Shop around. Roughly 20 to 30 percent of insurers will not insure a salvage title vehicle so you will need to shop around. Contact your current insurer to see if they offer coverage. If they don’t, start shopping.
Be Prepared For An Inspection. Some insurers will require an inspection and appraisal before they will insure a salvage title car. If you disagree with the appraisal amount, attempt to negotiate a higher amount or continue shopping for a new policy. Even if an inspection isn’t required to insure the vehicle, you may want to get one anyway. Before buying, have a local mechanic give the vehicle a thorough inspection.
Get A Repair Estimate. If possible, get the original repair estimate from the rebuilder or the insurance company that totaled the car. This can give your insurance company piece of mind that all damage has been repaired.
Prepare To Pay More. Pricing will also vary by insurer, but you shouldn’t expect a break on your premiums for a salvage car because you got a deal on the purchase price. If anything, the opposite will be true: Some insurance companies will add a surcharge of up to 20% to the policy when insuring a salvage-title vehicle.
Consider less-than-full coverage. Consider a liability only policy. This will protect you if you injure another person or their property. It will not cover the cost to repair your vehicle. Liability only insurance is much easier (and less expensive) to get with a salvage title car.
Some Final Tips
Again, we consider a salvage-title vehicle to be a risky buy that we don’t recommend. But if you’re ready to take the plunge, or already have such a car in your driveway, here are a few final tips:
Financing May Be Difficult. Insurance issues and the difficulty putting a value on these cars can make financing a salvage title hard. Be prepared to pay cash.
Understand Local Laws. Damage thresholds and inspection requirements vary by state. Research local laws, this will ensure you know what you are getting into with a salvage title car.
Run the VIN Number Through Databases. The National Motor Vehicle Title Information System is a federal database that was designed to limit title fraud. Search the VIN number of any vehicle you are considering.Also, you should pull a vehicle-history report for the car through Carfax or Autocheck; again, the VIN number is all that’s required to do so.
Prepare To Buy For Life. Salvage title vehicles can be very difficult to sell. If you purchase a salvage title car be prepared to drive it until the wheels fall off.