How to Insure a Car With a Salvage or Rebuilt Title

With the higher cost of living today, it’s no surprise that most people want to do whatever they can to save money when purchasing a vehicle. While the average used car price is down around $1,700 from last year, it still hovers around $25,251.

A common theme I hear many people talking about to save money on a used car purchase is to look for cars with a rebuilt title. According to Kelley Blue Book, a car with a rebuilt or reconstructed title can cost 20% to 40% less than a comparable car with a clean title, so it’s no wonder car buyers look at this as an option.

However, I want to caution you that while saving money may be at the top of your priorities, getting insurance on a car with a salvage or rebuilt title may be challenging and can deplete the savings you earn when buying the vehicle.

What are salvage and rebuilt titles?

Salvage and rebuilt titles are often confused. While they are related, they apply to different situations.

• Salvage title: The title of a vehicle an insurance company declared a total loss.
• Rebuilt title: The title of a previously salvaged vehicle that’s been repaired or restored.

Before a vehicle has a salvage or rebuilt title, it has a clean title. For example, when I bought my new Hyundai Santa Fe, it came with a clean title or a title that indicates the car has not had any damage, major defects, or an altered odometer reading.

All new cars start with a clean title, as do used cars, if they haven’t had any major damage.

How a salvage title works

A salvage title is usually the next occurrence after a clean title, but again, it only happens if there is a severe accident or damage from a storm or fire; not all cars end up with a salvage title.

In general, here’s how a salvage title works:

1. The driver reports damage to their insurance company
2. The insurance company sends out an adjuster who assesses the damage and estimates the cost of repairs
3. If the cost of repairs exceeds the car’s value, the insurance company may consider the car a ‘total loss’
4. The car owner receives the car’s cash value minus the policy deductible
5. The vehicle receives a salvage title showing that it was a total loss

Once a car has a salvage title, no one can legally drive it, as it cannot be registered or insured. However, restoring it and applying for a rebuilt or reconstructed title may be possible.

Each state has different laws regarding who can purchase a vehicle with a salvage title and restore it. For example, in Illinois, anyone can purchase a vehicle with a salvage title, but only a licensed rebuilder can get the car out of salvage status.

Does a rebuilt title make sense?

If you or a professional restores a vehicle after an insurance company declares it totaled, you may apply for a reconstructed title. I urge you to approach this situation cautiously, though. There’s a reason the car has a salvage title. While saving money may be a top priority, buying a car with previous severe issues may cost more in the long run as it may experience more problems.

It’s also a lengthy process (more on this below). You can’t just buy a cheap car with a salvage title, make a few repairs, and get a new title. You must prove the car is safe for the roads and meets the state’s requirements.

Sometimes, you can get lucky, and a reconstructed title makes sense. For example, you may find a vehicle with severe hail damage that an insurance company considered a loss, but it only has cosmetic, not mechanical, issues. You may be able to safely (and affordably) drive the car on the road once you apply for a rebuilt title.

On the other hand, if you find a cheap vehicle that experienced flood damage, it may not be worth it. Even if a licensed mechanic says he can fix the vehicle, there’s no telling how much future damage may occur as erosion continues.

Differences Between Rebuilt and Salvage Titles

The main difference between a rebuilt and salvage title is that a licensed professional attempted to restore a rebuilt vehicle to make it safe for the roads. You cannot drive a vehicle with a salvage or junk title on the roads for any reason.

However, the only title status that ensures you can get full insurance coverage is a clean title. Only a handful of insurance companies offer insurance on rebuilt titles, including Progressive and Allstate, but there’s no guarantee as it depends on your state’s laws.

Can you get full coverage on a rebuilt title?

Not all auto insurance companies will insure rebuilt vehicles because they consider them high-risk. It’s challenging to differentiate between old and new damage in a vehicle, so many insurance companies won’t offer collision or comprehensive insurance, which can leave you with a large financial responsibility.

However, they may provide state-minimum liability coverage, which you may think is enough. I urge you to pay close attention to this issue because, without full coverage, you could be on the hook for a large part of the cost of the damages.

• Liability insurance: Covers bodily injury and personal property liability for damages you cause to someone else or their property in an accident
• Collision insurance: Covers repairs to your vehicle if you’re in an accident and are at fault
• Comprehensive insurance: Covers repairs caused by issues other than an accident, such as fire or theft

How to obtain a rebuilt title

Since it’s clear you need a rebuilt title to insure a previously totaled vehicle, here are the steps to obtain a rebuilt title. Keep in mind, though, the process and laws vary by state. Check with your local Department of Motor Vehicles to understand your state laws.

1. Get a rebuilder license or work with a licensed rebuilder. Only licensed rebuilders can purchase salvage vehicles in some states for repairs or restoration. You can purchase a rebuilt vehicle from a licensed rebuilder if you don't have a license.
2. Take photos before starting work. Most states require photos of the car in its pre-repair state. I suggest erring on the side of caution and taking photos before beginning your project.
3. Complete the necessary repairs. Determine your state’s requirements regarding whether you can make the repairs yourself or if only a mechanic can repair the vehicle. Either way, keep receipts and good records. You may need to submit a list of the parts you purchased and their receipts. If you purchase used parts, you must submit the part name and the vehicle identification number (VIN) of the vehicle from which the part was taken.
4. Apply for inspection. Most states have a form you must submit along with photos and receipts to request a vehicle inspection. Check with your state to see if you must use a state inspector or if you can tow the vehicle to a private inspector for an additional fee. The inspector will inspect the car and the completed repairs to decide if the car is roadworthy and qualifies for a rebuilt title.
5. Submit a request for a rebuilt title. If the inspector passes the vehicle, complete the necessary forms for a rebuilt title and tag and submit it to your state’s DMV. There is usually an additional fee, and you must submit the inspector’s report.

How to get insurance on a rebuilt title

Once your car has received a rebuilt title, you can look for insurance from the best car insurance companies with these steps:

1. Shop online: I recommend looking for insurance using an online aggregator like The Zebra or checking out individual insurance companies' websites. You can provide the information about yourself and the vehicle and get a personalized quote.
2. Compare premiums: Prepare yourself for higher insurance premiums on a rebuilt title, and compare apples-to-apples when comparing premiums and coverage. For example, don’t compare a liability-only insurance policy with a full-coverage policy because they don’t cover the same situations.
3. Provide the necessary documentation: You must prove the rebuilt vehicle is legal to drive in your state, and have the necessary repairs. You may need a certified mechanic’s statement, vehicle photos, and the original repair estimate for the insurance company.
4. Understand your financial responsibility: The insurance premiums are part of your financial responsibility. Look at the deductible and the incidents the insurance covers, especially pertaining to any damage to your vehicle or yourself.

I recommend looking at the big picture. This includes the vehicle’s purchase price, repair costs (if applicable), insurance premiums, and the worst-case scenario if you are in a car accident. This can help you determine if you’re truly saving money by buying a car with a rebuilt title or if you’re better off paying a little more for a car with a clean title, but with lower insurance costs.

FAQs

Bottom line

I know the cost of even a used car can be scary. But, if you're considering buying a car with a salvaged or rebuilt title because of the lower sales price, be aware of the potential risks.

It may be more difficult and expensive to insure and finance the vehicle, even if it has a rebuilt title. Finding affordable coverage could take several insurance quotes, and your insurance rates may be higher than you expect.

In addition, the car will likely have a lower market value, so make sure you do your homework to fully understand what you’re buying.

Before making an offer on any used vehicle, I encourage you to learn about the vehicle’s history. Look up its VIN with the National Insurance Crime Bureau’s VINCheck tool. It will tell you if the car was ever reported as a salvage vehicle or involved in an insurance theft claim.

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