Expert: webfoot - 6/6/2006

Question
I have a 2002 Suzuki Grand Vitara 4WD (loaded) that was totalled in a tornado a couple of weeks ago.  I am still financing it and owe $10,000.  My insurance company has given me a settlement total of $8,200(this is after my deductible).  Many people (car dealers, paralegals, etc.) have told me not to settle for this amount.  I have talked to my contact claim person and she basically said that the amount is non-negotiable.  Is this true? And, if so, why are professionals telling me to not settle?  I've never had a claim before, so I'm new to this all.  I would like my car paid off and perhaps a small amount ($500 or so) to put down on a new car.  Mostly I just want to know that I am getting a fair deal since I am in new territory, so-to-speak.  Any advise would be greatly appreciated.

Thank you for the time spent to view my question,
Leslie

Answer
I'm sorry that you have to go through such an event.

The truth however, is that the insurance company only owes what is known as the Actual Cash Value for the vehicle and this has nothing to do with what you owe. You're policy likely has an option for a third party appraiser to put a value on it and there is nothing wrong with exercising this option.  However, do not be surprised if the value doesn't increase by much and may actually go down. In my claim handling, I've found that our total loss settlements usually exceed the ACV by at least 10% and if the insured finds a private party vehicle, they usually come out ahead.  That is assuming that they are not "upside down" in the vehicle where they owe more than it's worth.  

Think of it like this.  There is no law that would prohibit me from loaning you $20,000 on a $8,000 car.  If, I as a lender wanted to take such a risk, I'm free to do so and you are free to take the loan.  However, would that mean that your insurance company now owes $20,000 should something happen to the car?  Absolutely not.  This is where something called "GAP insurance" comes in.  It is a separate policy, usually sold by finance companies and dealerships which is designed to offset most of the negative equity in the vehicle.  

If folks are advising you to reject the offer, then ask them to provide you with some valid numbers to work with.  Keep in mind that Kelly Blue Book and NADA "Suggested Retail Values" are not the same as the Actual Cash Value.  Retail represents what a dealer may "ask" for on a fully reconditioned (all dents, dings, scratches, burns, rips, tears, stains removed, new tires, perfect mechanical condition) vehicle sitting on their lot, generally with a warranty. Only about 1 in 100 daily drivers are this nice. We all know that they do not and could never actually sell vehicles for that much money.  It is only an asking price to start the negotiation process.  The number that the insurance company uses is likely based on local market research and reveals the actual selling prices for your vehicle in the entire market segment, including private owners.  This is what the vehicle is truly worth.  That figure is certainly negotiable with valid data to back up what you're asking for.  Keep in mind that mileage and condition have great impacts on a vehicle's value.

Good luck and I'd appreciate your feedback.