The title to your car is very important as the holder of the title is generally recognized by the law to be the owner of the car. There are several reasons you may sign your title over to someone else, but the only circumstance you have to sign over your car title to your car insurance company is in the event your car is declared a total loss.
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There are many title scams abound, so it is very important to understand exactly what a title is, why it would get signed over to someone else, and how it gets properly signed over.
Understanding a Car Title and its Relationship to your Car Insurance Company
When you buy a car, you may or may not receive the title for the car. It all depends on if you purchase a car outright or arrange for financing options. If you lease a car you will never receive the title since a leased car is not purchased, but merely rented for an extended time.
When you finance the purchase of a car your lender will hold the title of the car, showing itself as the lien holder on it. This simply means that they have a lien on your car until the debt is paid in full. Once you pay your debt in full, your title will be released to you and they will be removed as the lien holder so that your car title is clear.
If you pay for your car in full then the title will become yours free and clear provided the car has no other liens on it.
This is very important if you are purchasing a used car since there could be liens on a pre-owned vehicle. Be sure all liens are removed from the title before you buy a car.
When to Sign a Car Title Over to a Car Insurance Company
Unless your car insurance company is also financing your car loan (which is highly unlikely) you will not sign over your car title to them. The only time you will sign your car title over to anyone is when you sell it or give it away. If your car is totaled for any reason that is covered by your insurance policy, then you will receive fair market value for your car from your car insurance company.
At that time you will sign over your title to the car insurance company because they have paid you for your car in full and they will now take possession of the title.
If you feel that your car insurance company is not paying you enough money for your totaled car, then you may need to hold off signing over the title until you do some investigation. Typically, a car insurance policy is only written to pay out benefits equivalent to the fair market value of your car.
The fair market value of your car will take into consideration the make and model of your car, the age of it, the mileage on it, the condition of it, and any extras that were installed either at the factory level or after market. Whatever the fair market value is deemed to be just prior to your accident is the amount for which the car insurance company will reimburse you.
Sometimes you can negotiate with your car insurance company if you can prove your car was more valuable then they estimated. Typically you can only do this if you can show documentation that there is an error in the paperwork, such as incorrect mileage or vehicle condition, or if the fair market value from Kelly Blue Book is higher than what the insurance company offered as settlement.
Most legal systems will rely on the Kelly Blue Book price, so if you went to court that would probably be the dollar amount used for settlement.
If the fair market value for your car is appraised by the insurance company at $2,000 but Kelly Blue Book states your car is valued at $2,500 then you may be able to settle with your insurance company for the $2,500.
No matter how much the dollar amount is, once you agree and receive the settlement from the insurance company you will need to sign over the car title to them since at this point they have technically bought your car from you.
How to Sign Over a Title to a Car Insurance Company
Every car title differs slightly from state to state, but the main components are the same. A car title will show you who owns the car, who the lien holder is (if any), and the Vehicle Identification Number (VIN). The title also has a place to record the buyer and seller of the car along with pertinent details such as the odometer reading, the date of the sale, and the transaction cost.
In order to sign over the title to your car insurance company, you first need to have the title in hand. If your car is still being financed then your lender will have the title and will need to be involved in the transaction as well. The cost of the sale in the case of a totaled car is the amount you received in settlement for your fair market value.
As the seller of the car you will not be responsible for paying any taxes on this transaction.
Once the title is signed by both the seller (you) and the buyer (the car insurance company) the transaction is complete and the title gets handed over to the car insurance company.
Avoid scams by always keeping your title in a safe place and never giving your title to anyone unless you are actually selling the car to that someone, and only after you have received the payment in full. Be sure to keep your insurance on your car until the sale is complete and if you are buying another car you should buy car insurance for it prior to taking possession.
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