Insurance Policies and Regulations Flashcards

Many states define a vehicle as a total loss when repair cost plus salvage value exceeds actual cash value. What is this method called?

Answer: Total loss formula (TLF)

The total loss formula compares repair cost plus salvage value to ACV instead of using a fixed percentage.

How do most auto insurers calculate actual cash value (ACV)?

Answer: Replacement cost minus depreciation, based on comparable vehicles in the local market

ACV reflects the pre-loss market value of a comparable vehicle, which accounts for depreciation, condition, mileage, and options.

What is a 'betterment' deduction in an auto claim?

Answer: A deduction when repairs leave the vehicle in better condition than before the loss, such as new tires replacing worn ones

Betterment charges the insured for the extra value added when worn parts are replaced with new ones.

What does gap insurance cover after a total loss?

Answer: The difference between ACV and the remaining loan or lease balance

Gap coverage pays the shortfall when the loan or lease balance is more than the vehicle's actual cash value.

Which type of diminished value claim is most commonly recognized against an at-fault third party's insurer?

Answer: Inherent diminished value

Inherent diminished value is the loss in market value a vehicle suffers just from having an accident history, even after proper repair.

In most states, a first-party diminished value claim under the insured's own collision coverage is generally:

Answer: Not covered, because the policy promises repair or ACV rather than lost market value

Most courts hold that first-party policies cover repair or replacement, not post-repair loss of value, though Georgia is a notable exception.

In a total loss settlement, what are 'title, tag, and taxes' generally?

Answer: Fees many states require insurers to include in a total loss settlement

Many state regulations require insurers to include applicable sales tax and title/registration fees when settling a total loss.