In a cash settlement, what must the insurer include when calculating the payout?

When determining the payout in a cash settlement, the insurer is required to include sales tax as part of the overall calculation. This is because when the policyholder receives a cash settlement for vehicle damage, they typically need to use those funds to either repair or replace the damaged vehicle. The cost of replacement or repair often includes associated taxes, which are a necessary expense for the insured to effectively restore their vehicle to its pre-loss condition.

In many jurisdictions, sales tax is a stipulated part of the costs that must be factored into the settlement amount since it reflects the state and local government requirements for purchasing new parts or vehicles. Without including the sales tax, the settlement may not fully cover the actual costs incurred by the insured in rectifying the damage to their vehicle.

In this context, while replacement cost, depreciation value, and towing fees can also be considered in vehicle valuations, they do not specifically address the legal obligation of the insurer to account for sales tax when calculating a cash settlement. Thus, including sales tax ensures that the payout reflects the true financial impact of the loss to the insured.