Salvaged Vehicles: Car Insurance Complications

A rebuilt 2002 BMW 325 found on Craigslist, is worth considerably less than a normal used car.

Who doesn’t like to save money? That’s really quite the silly question, because it goes without saying that everyone does. And one quick way to save money is to buy a used car that has a salvaged or rebuilt title.

Most will place exceptions on how far they’re willing to go on saving money. Such as paying more for a tablet computer because the lower priced ones don’t offer the convenience or experience of the premium product.

And even if you’re not exactly worried about making concessions by accepting an inferior product, when it comes to something as important as your daily driver, salvaged vehicles have myriad potential issues for their owner.

Which should leave anyone considering a salvaged or rebuilt car with one question in mind: do the savings outweigh the potential risks?

Let’s take a look at what buying a salvaged car can mean to the average consumer? And what will it mean in regards to your car insurance coverage? We’ll begin by looking at what a rebuilt or salvaged-titled car is.

What are salvaged cars?

A salvaged car is one that an insurance company has declared as totaled from a collision or crash. They may also total cars that were simply flooded or burned as a result of fire.

While we’re leery of all rebuilt or salvaged-titled cars, we believe fire or flood-damaged cars offer a devastating slew of potential negative issues, and should be avoided without consideration.

Once a car is declared totaled, the state’s DMV will issue a salvage title to the vehicle. The process of taking a car from salvage to being able to be declared road-worthy is different in each state. Most states have requirements for proof of repairs in order to allow a vehicle like this to even be driven on the road.

The salvage, and like-wise, the rebuilt title issued once a salvage car is made road-worthy again, should serve to warn future buyers that the car has been declared a total loss and has undergone repairs to get it back on the road. However, sometimes its impossible to know exactly what damage a car suffered.

Is This Similar to Salvaged Parts Used on a Claim I Made?

Not exactly.

If you’ve ever had to make a claim on your auto insurance and had your automobile repaired, it’s possible you’ve already come into contact with salvaged cars. Or more accurately, you’ve come in contact with parts from salvaged cars.

Auto insurance companies often specify used parts, known as like kind and quality (LKQ) parts. These are taken off salvage vehicles, and used to repair wrecked cars.

On occasion, these will be referred to as “refurbished” parts, meaning they’ve gone through another processing step between junkyard and your repair. For those who believe in recycling, this is the ultimate way to demonstrate it.

What are some problems with salvaged cars?

To say that salvage cars are fraught with perils is putting things lightly. Here are some of the things you should be thinking about whenever you consider the purchase of a salvaged or rebuilt car:

Automobile Value is Considerably Lower

Expect such a car to be worth only 50% of the Kelley Blue Book value. Some may be worth more, but its highly dependent upon both the automobile and the damage it suffered, not to mention the quality of the rebuild.

Financing can be a problem

Because banks know the value of these cars is compromised, they’re less likely to want to finance them and may charge higher interest rates.

Fraud is rife in the salvage market

Be wary of any seller of salvaged cars. It’s an industry rife with fraud. Make sure to check the dealer’s standing with the Better Business Bureau (BBB).

Insurers may balk at full coverage

This depends largely on where you live and how your state handles rebuilt cars, as well as the regulatory environment insurers operate in. Every state is different.

But in general, insurance companies are reluctant to insure these sorts of vehicles. You may be able to find a company that is going to insure it, but you’ll need to do some searching. Even if they will give you basic liability, they may not be willing to issue a policy that includes comprehensive or collision insurance on it.

Resell value is questionable

Especially if you paid too much to start with. Remember, a salvaged car, even if fully rebuilt, is worth much less than a typical used car, and you’ll face the same hurdle when you try to sell it yourself.

Your safety may be at risk

Not all rebuilders operate on a legitimate basis. We’ve heard of cases where things like airbags are non-operational after a car is declared rebuilt. This is why knowing as much as you can about a salvaged car, and the quality of the rebuild, is paramount.

Is a Salvaged Car Right for You?

We know some people love to save money, so if you decide that the potential for pitfalls is outweighed by the significant savings you hope to pocket, then buying a salvaged car may be for you. And buying a salvaged car isn’t too difficult.

If you do a Google search, you’ll find website after website offering to sell you a salvaged car. You can also look for salvage vehicles at salvage or junk yards, and some vendors specialize in nothing but salvage automobiles.

Unless you’re planning on hiring someone to make the vehicle road-worthy or doing it yourself, you’ll need to be wary when you purchase a salvage or rebuilt car. Go ahead and order a CarFax or demand the seller provide one before you buy. And don’t forget, quality and safety can vary widely outside the normal range for a particular model, and not all rebuilders do quality work.

As always, we err on the side of safety, and don’t feel at all comfortable with rebuilt or salvaged cars. They are fraught with hazards. If you decide one is right for you, be careful and remember this basic rule; if it seems too good to be true, it probably is.

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