Total loss? Here’s how your client could still keep the vehicle

Even if your client’s vehicle is a total write-off, they still may be able to keep it, Mitch Insurance claims specialist Jesica Ryzynski tells Canadian Underwriter.

Through an option known as an owner-retained salvage agreement, the policyholder keeps their vehicle and accepts a settlement based on the current market value of the vehicle, minus the salvage value, Ryzynski explains. The other option is a total loss agreement, in which case the insurer retains the salvage and pays the policyholder the fair market value of their vehicle at the time of loss.

In most total loss situations, the insurer retains control of the vehicle and usually partners with a salvage yard, which purchases the salvage. The salvage yard then decides what happens to the vehicle. “This helps offset the cost of claims and avoids what would otherwise be a disposal fee,” Ryzynski says.

But if a vehicle is in an accident and deemed to be a write-off by an insurance carrier, an owner-retained salvage agreement allows the client to keep the car. The insurance company will first deduct the salvage vehicle (the amount the insurer would have received for the car when sold as salvage) from the final payout.

For example, if the insurer would have given you a $10,000 payout but estimates it would have received $2,000 for selling the car as salvage, it will then offer you $8,000. You would then accept the reduced payment and retain full possession of the vehicle, Mitch Insurance writes in a blog last month.

So, when should your client opt for an owner-retained salvage agreement?

“Sometimes the cost to repair an older vehicle is going to exceed its value, and it doesn’t make sense for the insurance company to repair it,” Ryzynski says. “However, that vehicle could have low mileage, be really well-maintained, and fully paid for.

“In that case, it might make more sense financially for the client to keep the vehicle and get it repaired on their own, rather than trying to find a comparable used one.”

Not for everyone

Although the owner-retained salvage agreement option isn’t for everyone, “people facing the loss of a well-maintained, low-mileage vehicle are always interested in having that discussion,” Ryzynski tells CU.

She says when clients learn their vehicle is a total loss, they may express fear about having to take on a car payment. “They are so anxious because it isn’t something they can afford,” she says in the blog. “If those people can retain their vehicle and use the settlement to pay someone to repair it, it could be a lifesaver for them financially.”

These agreements usually apply to older vehicles, Ryzynski says. “They have a vehicle they’ve owned for years and have paid off, and they often express concerns about having to take on a car payment again. For many people, adding another monthly expense simply isn’t in the budget.”

But there are times when an owner-retained salvage agreement should be avoided.

For example, if a car is deemed a total write-off, it might be ‘branded,’ the blog says. This means the damage is so severe the insurance company or Ministry of Transportation adds a label to the car’s records to identify the level of damage it has sustained. Each province has its own standards of designation.

If a vehicle is branded, the policyholder may have difficulty insuring it again after the repairs are done, Ryzynski adds.

It’s important for insureds to confirm there will not be a brand on the vehicle; also, they need to be sure the parts they need can be found, and that someone can do the repairs. Sometimes the parts needed for the repair are no longer available or it may be hard to find a mechanic equipped to do the work.

In effect, an owner-retained salvage agreement could save your client considerable expense, help them avoid the hassle of looking for a replacement vehicle, and allow them to keep a car they know and enjoy driving.

On the flip side, there’s a risk repairs could cost significantly more than expected. Plus, it can be difficult to find an insurer even after repairs are made to a vehicle deemed a write-off. And if the car is branded, your client will have to go through a rigorous process to get it officially drivable.