If you’re involved in a car accident, one of the first things you do, after making sure everyone’s okay, is to contact your auto insurance company. After filing a claim, your insurer needs to determine the value of your vehicle. Once they figure out how much your car is worth, they’ll reimburse you for repairs or declare a total loss.
So, how do car insurance companies determine the value of your car, and what constitutes a total loss? Here, we’ll answer these questions and more to help you understand what goes into figuring out how much your vehicle is worth should you be involved in an accident.
When you’re involved in a car accident, your auto insurance company needs to figure out how much it was worth before it was damaged. After you contact your insurer, the company generally sends out an insurance adjuster, which is the first step in determining if your vehicle is totaled. If it is, the adjuster performs an appraisal to determine a reasonable cash offer for what it would have been worth right before the accident. Your insurance company will also determine the value of your vehicle. It considers both values to figure out how much to offer you for the car.
After an accident, your auto insurance company may request that you get a few quotes from repair shops to figure out how much it would cost to fix your vehicle. If the repairs are less than the value of your car, your insurer will likely reimburse you for those costs. In some cases, however, your car may be a total loss.
A car is “totaled” if its assigned value is less than what it would cost to get it repaired. Keep in mind that your car can be a total loss even if an autobody shop can get it back to pre-accident condition or if it’s still in driving condition after the accident. Depending on your car, even a minor fender-bender can result in a total loss.
Unfortunately, there’s no easy answer to knowing how an insurance company determines your car’s value. Many providers use industry formulas. As such, it can be a challenge to predict what pre-collision value a given insurer will assign your vehicle. What they calculate, however, is the actual cash value.
Most insurance companies cover actual cash value (ACV) in the event of an accident, which is essentially what your vehicle would have been worth if you sold it right before the accident occurred. To determine this figure, an insurer looks at a variety of factors, including:
Make and model of your vehicle
Age of your car
Signs of wear and tear (before the accident)
In addition to the above factors, your auto insurance company may also look at comparable vehicles for sale in your area. They’ll search for cars with the same make and model, as well as similar specifics (age, mileage, wear, etc.). With this information, your insurer can get a better idea of what your car would have been worth had it not been totaled.
The ACV of your car is its pre-collision value minus the deductible you pay for comprehensive and collision coverage. Many drivers are surprised to find that the ACV of their vehicle is hundreds, if not thousands, of dollars less than what they paid for it originally. Even those who make a concerted effort to maintain their cars can see a significant decline in their value.
The reason for this is because cars depreciate in value as soon as you drive them off the lot, and they continue to drop in value over time. Your vehicle may only be a month or two old and have very few miles on the odometer, and its ACV will still be much lower than what you paid for it.
While most auto insurance companies use the ACV of your car to figure out how much to offer you, there are a few additional coverages you can add to your policy that can affect what you get. The cost of these add-ons varies from one provider to the next, and some may be more expensive than others. In general, however, these coverages can provide significant help should your vehicle be totaled after an accident.
If you lease a new car or take out an auto loan to pay for it, you might seriously consider gap insurance. Why? Well, even if you’re in an accident that totals the vehicle and you don’t have it anymore, you still need to make your loan or lease payments.
Or, let’s say that you get into an accident a few months after you buy your car and, due to depreciation, it’s worth less than what you currently owe on your loan. Your insurer will likely only pay ACV, not your loan balance. In such cases, you’ll have what’s known as a “deficiency balance.” If you don’t pay it off, your lender will come after it.
In either case, you might seriously want to consider gap insurance. Gap insurance is an add-on that will pay the “gap” between the ACV of your totaled car and the balance remaining on your loan or lease. In many cases, lenders actually require that you have this coverage just in case. In the event it’s not a requirement, you may still want to have it.
You can get gap insurance from one of two places –the dealership or bank financing your loan or your car insurance provider. In general, it’ll be more expensive if you get it from the dealer or bank than from your insurer.
While car insurance companies typically offer more affordable gap insurance, there are still a few factors that go into determining the cost. Your insurer will look at the ACV of the vehicle as well as your location, age, and claims history. Another thing to keep in mind is that not all providers offer gap insurance. In such cases, you’ll need to get it from whoever is financing your loan, or you’ll need to look into switching to a different insurance company.
New car replacement coverage is an add-on that many auto insurance companies offer. It allows you to upgrade a policy that would typically pay ACV for your vehicle to one that will pay you to buy a new version of the same make and model as your totaled car. Also called a replacement cost policy, this type of car insurance doesn’t take deprecation into account. Instead, your insurer looks at the current cost of similar cars to yours to determine your payout.
If you have a newer vehicle, new car replacement coverage may make the most sense. Remember, new cars depreciate quickly the moment you drive them off the lot. So, if you’re involved in an accident a month after you buy it and it’s declared a total loss, the ACV would be much lower than what you paid just a few weeks before. As such, you may find it much more financially beneficial to have an upgraded policy that pays the replacement cost.
Most car insurance policies default to ACV for determining reimbursement if your car is totaled or stolen. It helps insurers to save money while also keeping your premiums low. As mentioned above, ACV is what your vehicle would have been worth right before the accident, minus your comprehensive and collision deductible.
Replacement cost, on the other hand, offers better coverage by paying you to replace your totaled car with a new one of the same make and model. Keep in mind that this type of policy will cost more than one that provides ACV. It can, however, provide peace of mind that you can more easily replace your car if something happens to it.
It’s entirely possible that your insurance company offers you right around what you expected the value of your car to be. Sometimes, the insurer may pay out more than what you thought you’d get. Such instances can be a very welcome surprise. The extra money gives you the ability to get a better or newer replacement vehicle.
In some cases, your auto insurance provider may come up with an ACV that’s lower than what you expected. Fortunately, you don’t necessarily have to accept it. If you believe your car is worth more than what your insurer offers you, you may be able to dispute your insurer’s valuation.
If you believe that your car was worth more prior to being totaled and you think your insurance company’s valuation is too low, you can dispute their offer. However, you can’t just say that you’re unsatisfied. You will need to prove that your vehicle would have been worth more than what your insurance company says it is. Here are a few things you can do to ensure your success:
Search for similar vehicles in your area. Look for cars that are more than the same make and model as yours. You’ll want to ensure they also have close to the same mileage, wear and tear, accident history, and more.
Check dealerships. Don’t just look at cars for sale on Facebook Marketplace, Craigslist, or local listing sites. Checking out the value of similar vehicles at dealerships in your area can help to add more credibility to your dispute.
Look up the value in Kelley Blue Book. Kelley Blue Book is an excellent place to get an idea of what your car is worth. Provide as much detail as you can to get the most accurate valuation. You’ll get a trade-in range, as well as a trade-in value, based on the information you give.
Once you gather all of the proof that your car is worth more than your insurer offered you for it, present it to the company. There’s a good chance they’ll reconsider their offer and extend something better if your evidence is sufficient.
Car insurance is there to protect you financially in the event of an accident. You want to ensure that you have adequate coverage for any vehicle you buy.
While you could purchase the bare minimum based on the requirements of your home state, these may not provide sufficient protection. They’ll provide some assistance, but it may not be enough. If you bought a brand-new (or newer model year) vehicle, took out a loan to buy your car, or have a lease, you want to make sure that your insurance company will cover as much as possible if you get into an accident.
If you’re worried that your current policy won’t cover the cost of repairs or replacement for your vehicle, you can always contact your insurer to make changes. Or, you can compare auto insurance policies and rates from other companies to find one that better suits your needs.
Getting into a car accident is scary enough. When your car gets totaled, things can become even more stressful.
To determine how much to pay you, most auto insurance companies calculate your car’s actual cash value. Understanding how a company calculates ACV can be helpful in knowing what to expect. If you’re worried that you won’t get enough, you can always add additional coverages, such as new car replacement or gap insurance, to your insurance policy for extra protection.
Remember, if you are in an accident and your insurer offers you something lower than what you think is fair, you can always dispute it. Make sure that you provide evidence of what you think is fair to back you up.
Your car insurance policy should be there to protect you. If you’re not happy with your current provider, you can always go elsewhere. Compare rates and coverage options from different insurance companies to ensure that you get something that best fits your needs.