Two costly car insurance questions

When most of us have to tap our auto insurance, the issues are usually simple: How soon can I get the car fixed? What’s my deductible? Will my rates now go up?

But in the age of CARFAX (where potential buyers can discover that your car was seriously damaged three years ago in a wreck) and increased efforts by insurers to limit their losses, two rare but important issues may come into play: diminished value and betterment.

Diminished value is an argument that once a car has been in a crash and been repaired, its value to the owner has diminished when compared to an identical vehicle that has never been damaged.

For example, a 2003 Honda Accord that sustained significant crash damage but was repaired to serviceable condition — both visually and mechanically — may be worth less at trade-in or sales time than an accident-free Accord with similar mileage.

The argument is that even though the damaged Accord was repaired and returned to reliable service, the insurance company owes the owner compensation for the car’s diminished value. This compensation could range from several hundred to several thousand dollars.

In the past, owners of expensive and rare vehicles typically have pursued such claims. These cars are much more prone to scrutiny from potential buyers than the average used car.

But increasingly, savvy owners of less prestigious cars are pressing the idea of diminished value with their insurance companies.

Understandably, the first response from most insurers is to deny such claims. Some policies may have language that precludes the claims altogether. But it’s still worthwhile for a consumer whose vehicle has been severely damaged to at least explore this avenue.

On the flip side, some insurance companies try to recoup money from customers by claiming vehicle “betterment.” This occurs when vehicles have been repaired to a condition that’s allegedly better than before an accident or incident.

A colleague ran into this several years ago when her car stalled out in a flooded intersection and water got into the engine block.

Her insurance company paid to have the engine rebuilt, but then sent her a bill for about $400 for “betterment” after the adjuster found that prior to the flooding, the engine was clogged with oil sludge. The insurance company argued that the freshly rebuilt engine increased the value of the car.

More common incidents of betterment involve fresh repaints of an entire car that, before the crash, had faded paint or many minor dings in the bodywork.

The good news for consumers is that such betterment charges are not automatic and can be challenged through arbitration under the terms of the policy.

But it’s always worthwhile to look beyond immediate insurance concerns when your car has been in a wreck to see what else may be at stake. 

Lender takes tough stand on lease 

Dear Terry,
Twenty-eight months ago, my wife went out to a Cadillac dealership, traded in her paid-off truck and leased a 2007 Cadillac Escalade. I was not present. They took her $40,000 truck and applied $20,000 toward the new lease.

Our financial situation has changed, and she was not able to pay the new truck note for the past 2-1/2 months. Last week, GMAC repossessed the truck. She was behind on payments of $2,500. I offered to pay that amount and pay any repo fees involved.

Surprisingly to me, GMAC said no, they want the full amount of the truck to buy out the lease, which I was told was $48,000. I am prepared to pay the full $2,500 plus expenses, or even pay the full remaining balance of the lease, which is $14,000. But they will not entertain my offers.

What can I do? Do I have any laws on my side? Please help!
— Harry

Dear Harry,
The terms of what happens to a leased vehicle when it is repossessed should be spelled out in your contract. It does surprise me that GMAC is being so firm, given the current leasing situation. I would think they would rather have the lease current rather than be stuck with an SUV that will be somewhat hard to sell at auction.

Also, the amount you should owe in any case is the remaining lease payments and the difference between what they get for the SUV at auction and the residual value stated in the contract. That won’t be an insubstantial amount of money, but it should be less than $48,000.

Since you appear to have some financial resources, it would be worthwhile having an attorney look into this.

Car dealer advertising often slippery 

Dear Terry,
I am in the process of purchasing a pre-owned car from a local dealer in San Diego. When I first found the car, I was on AutoTrader.com and the car I wanted showed up as being on the dealer’s lot. It said the price was $16,995.

I went in that afternoon and test drove the car and asked about any discounts on the price. They seemed thrilled that I had seen the car online for “such a low price” and said they had discounted it way down to get to the $16,995 price, so there was no more room to budge.

I had been in negotiations with them for a week when I went online to the actual dealership page and searched the pre-owned inventory again. No wonder they were thrilled at the price of the car — they were advertising on their own Web site a “special” on this particular car. It was the exact same car for $14,995.

Am I in the right to demand that I get the lower price for the car, the price that was advertised twice on their “specials” section of their Web site? Are they wrong to tell me otherwise, when it says the offer is good until the end of the month? Any feedback would be helpful.
–Nicole

Dear Nicole,
There’s nothing more slippery than dealer advertising. In this case, I think that state law would require them to sell you the car at the advertised dealer price.

You need to make sure the vehicle identification number, or VIN, is identical — most states require ads for cars include VIN information — and, if necessary, threaten to turn them into the state consumer affairs bureau.

Wait to graduate before buying car 

Dear Terry,
I am 19 years old with a credit score of 694. I have one credit card with a $1,000 limit. I have paid the balance in full every month during the seven months I’ve had the card. This is the only credit or debt I have.

I gross about $1,400 a month at my job, which I have been at for two years as of next month. I also just got a raise. I attend college full time and work 34 hours a week.

I am looking into purchasing a new car. I currently own a 2000 Honda Civic with about 135,000 miles and an estimated trade-in value of $4,000. My parents will not co-sign on a loan for me. The loan amount I will need will be $13,000. 

Do you believe I will be accepted without a co-signer?
— Levi Farmer

Dear Levi,
It’s great that you have started responsibly on building credit, but your age may work against you in getting a loan without a co-signer. The lender wants to make sure there’s someone it can turn to if you get into a situation where you can’t make the loan.

As a rule, I recommend against loans with co-signers because a lot of them go bad and the co-signer is left holding the bag.

I would also suggest that you hold off on buying a new car until you graduate college and get a full-time job. Car payments, plus increased cost of insurance, can eat into that $1,400 a month income rather quickly.

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