Insurance Auto Auction: Explained Simply

Every day, there are countless numbers of accidents on U.S. roads that damage cars severely enough to have been totaled by insurance companies, but not severely enough to have them crushed at the scrap yard.

Have you ever wondered what happens to those vehicles? While some are parted out at local junkyards, others are sold at insurance auto auctions. The ones that go to auction have enough value left in them to be rebuilt and put back on the road. (For more information, read our “Rebuilt Car Title: Explained Simply“).

Insurance auto auctions are not simply confined to cars wrecked in accidents, either.

Insurance companies may choose to total a vehicle after a flood, fire, or even damage caused by thieves, depending on whether or not the insurance company can justify the cost of repairs as opposed to purchasing a new vehicle.

Since the insurance company has no need to keep totaled cars, the vehicles get sold at auction, and the insurance companies put a little money in their pockets.

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Why would car insurance companies go to the trouble of having insurance car auctions?

When a car insurance company totals your vehicle, they have determined it’s more cost-effective to replace it than repair it.

When they write you a check, they are essentially purchasing your damaged or salvaged car from you.

Once they have possession of your damaged vehicle it becomes a financial liability to them unless they can sell it to someone else or part it out like a junkyard does.

Therefore, the best option for the insurance company is to auction the car outright. Since they are not in the business of parting out salvaged cars, they don’t have the time or resources to do so effectively.

Insurance companies usually do not auction the cars themselves.

Rather, they consign them to local or regional auction houses that do the work in exchange for a percentage of the sale price.

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Who buys the cars from insurance car auctions?

The most common buyers of salvage vehicles are local wholesale dealers who intend to fix the damage and then resell the auction cars.

In fact, there are some insurance auto auctions that restrict access to only licensed car dealers.

Generally, car dealers will pay cash upfront and take the vehicles away immediately, while private owners might need a day or two to scrape up the money and may never come back to claim the vehicle.

There are a fair number of car collectors and hobbyists who frequent insurance auto auctions as well.

For someone whose hobby is restoring damaged vehicles and putting them back on the road, this is a great way to get a decent car at a cheap price.

However, collectors and hobbyists that do this know they have to be choosy about which cars they bid on. If the car has sustained too much damage it could end up costing more money than it’s worth.

Read more:

• The Best Online Car Auctions
• Compare Car Insurance for Cars Bought at Auction: Rates, Discounts, & Requirements

Are there any restrictions on buying cars from insurance auctions?

Different states have different regulations when it comes to salvage or wrecked vehicles.

However, as a general rule, most states issue a salvage title which indicates to any subsequent buyers that the vehicle has sustained significant damage.

In some states, a salvage title can be replaced with a standard title once repairs are complete. How this is administered depends on state regulations, so you’ll have to check with your state for the details.

On the other hand, some states require that a salvage title remains with the vehicle for the remainder of its life. Usually, once the car is totaled, it will never be completely normal again regardless of the repairs done. (For more information, read our “Compare Best Car Insurance Companies That Take Salvage Titles“).

If you think you’d like to attend an insurance auto auction, just be careful that you know what you’re getting into.

Take the time to research the laws in your state, and be sure to set a budget of how much money you can spend. If you are diligent, buying a car from an insurance auto auction could turn out to be profitable.

Are any non-salvage cars sold at car insurance auctions?

Because of the difference in state laws regarding salvage titles, it is possible to purchase a car at an auto insurance auction that doesn’t have a salvage title attached to it.

Finding a car at one of these auctions without a salvage title is rare.

Insurance companies aren’t in the habit of taking possession of damaged vehicles unless they have to because it simply isn’t profitable.

Remember that most of the vehicles you find at these auctions will be salvage vehicles and will require extensive repairs before they can be put back on the road.

That’s why these types of auctions are often limited to only licensed dealers and repair shops.

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Is there a way to know if I am buying one of these vehicles from a dealer?

Just as with the issue of salvage titles, different states have various laws regarding the disclosure of vehicle damage and salvage titles.

Regardless of where you live, you can rest assured that there are legal protections in place to ensure you know as much as possible about the car you’re purchasing.

If you feel you have purchased a used vehicle without information being fully disclosed, you should contact your state attorney general.

One last thing to consider about vehicles sold at insurance auto auctions is the fact that no matter how good the repairs, the vehicle will never be in as good condition as it was when it was brand new.

For many people, this is not an issue because they normally buy used cars anyway. But if you’re used to the dependability and reliability of a new vehicle, think long and hard before purchasing a car that was sold at an insurance auction.

Whether you’re buying a new car or a used one, you can search for competitive car insurance quotes by entering your ZIP code below.

Case Studies: Insurance Auto Auctions

Case Study 1: Rebuilding Wrecked Vehicles

In this case study, a car insurance company auctions off a vehicle that has been totaled in an accident. The buyer, a licensed car dealer, purchases the vehicle at a lower price and rebuilds it to a drivable condition, eventually reselling it.

Case Study 2: Salvage Title After a Natural Disaster

This case study explores a scenario where an insurance company declares a vehicle as a total loss due to damage caused by a flood or fire. The company decides to sell the vehicle at an auction rather than repairing it, as it would be more cost-effective. A car collector takes the opportunity to purchase the vehicle at a discounted price for restoration.

Case Study 3: Restrictions on Auction Purchases

In this case study, we discuss the various regulations and restrictions imposed by different states on buying cars from insurance auctions. It highlights the importance of understanding state laws and checking for salvage titles, as well as the limited access to these auctions for licensed dealers and repair shops.

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