Why are total loss vehicles auctioned before compensation?
2 Answers
Total loss vehicles are auctioned before compensation because the insurance company needs to deduct the salvage value. Introduction 1: The specific compensation amount for a total loss vehicle does not entirely follow the amount stated on the insurance policy. When a vehicle suffers a total loss, if the insured amount is higher than the actual value at the time of the incident, the actual compensation limit for the total loss is the actual salvage value at the time of the incident multiplied by (1 - deductible rate). Introduction 2: If the insured amount is equal to or lower than the actual value at the time of the incident, the compensation is calculated based on the insured amount. In this case, the final actual compensation received is (insured amount - salvage value) multiplied by (1 - deductible rate).
A few years ago, my car was totaled in an accident, and the insurance company said they had to auction off the wreckage before compensating me. I was confused at first, but later understood that the auction was to recover some value. Although my car was badly damaged, the engine or parts could still be sold for some money. The insurance company auctioned it to recycling yards or repair shops, recouped some cash, and then deducted that amount before paying me the total loss value. This way, the insurance company doesn’t waste money, the actual payout is slightly reduced, and it ensures I don’t receive extra benefits. If they paid the full amount without auctioning, the insurer would incur higher costs, which might eventually lead to increased premiums for everyone. Additionally, auctioning the wreckage allows for parts to be reused—like salvaged components for other cars—avoiding waste and benefiting the environment. After that auction, my compensation process went smoothly, and I used the money for the down payment on a new car.
