Have you been searching the internet for ”How does an insurance company determine the value of a car?” Well, you have stumbled on the right article for that.
When your car is declared totaled in an accident, your insurance provider pays you for the value of the totaled vehicle. Or, more accurately, the company pays you what it claims the value of the vehicle to be.
80% of people who have gone through this process can attest that the most annoying part is accepting the insurer’s assessment of your car’s value.
In fact, the estimate may be lower than you anticipated. And the amount you get may not be enough to purchase a replacement.
Sometimes, it may not even be enough to cover the loan you still owe on the vehicle. Being unfamiliar with the methods used by insurance companies to value vehicles complicated the issue.
The methods for valuation are esoteric, and they are careful not to reveal them. This makes it very hard for customers to challenge a low offer from an auto insurance company.
Knowing how an insurance company determines the value of a car and the methods they use can give policyholders a stronger position to negotiate well.
How Does an Insurance Company Determine the Value of a Car?
When determining the value of your vehicle, the car insurance provider will take into account your vehicle’s make, year, model, mileage, accident history, condition, and depreciation. This refers to the cash value of your vehicle.
Insurance companies often use these factors to calculate ACV:
• Make, model, and year of the vehicle
The maker, model, and age of a car are one of the factors that an insurance company can use to determine the value of your car. For instance, a very expensive luxury model holds much more value than an economy brand.
Plus, some specific models from the same manufacturer might experience various rates of depreciation. Also, older cars have depreciated over time, reducing their market value.
• Mileage at the time of the car loss
Generally, higher mileage does lead to higher wear and tear, which results in a lower valuation. A vehicle that travels or covers long hours may later get tired and damaged. And this may greatly reduce its valuation.
• Condition of your vehicle before the loss
Vehicles that are in great condition retain their value compared to those that show signs of damage or wear and tear. A vehicle with a good history of regular service can greatly impact a car’s insurance value.
On the other hand, a vehicle with a history of accidents or a lack of maintenance can decrease the car insurance value.
• Salvage value (what parts and metal can be resold for)
After your car is deemed a total loss, the amount the parts and metals can be resold for may determine the vehicle’s valuation. If it is a very expensive brand, the parts may be highly sought out, making the car very valuable.
• The selling price of similar cars in your area
Your geographic location and the market condition may affect a car’s valuation. For instance, if your car is an SUV and it is known to be expensive and have higher demands in your area, the insurance value will be very high.
In certain locations, like New York, sales tax must be included in the ACV. But title costs don’t have to be. Depending on the state you live in, insurers might have to use certain guides, like NADA guides, to check what your ACV will be.
They might also make use of other approved sources. You can ask your state’s department of insurance to know the approved sources that are allowed to determine your car’s ACV.
What is New Car Replacement Insurance?
New car replacement insurance provides you with enough money to buy a new version of your car if it gets stolen or totaled. This coverage ignores the car’s depreciation.
New car replacement insurance is always more expensive than regular ACV coverage. Insurance providers often have age and mileage limits for vehicles that qualify for this type of coverage. Some companies even provide better car replacement coverage. This allows you to purchase a newer or better model if your car is a total loss.
Just like ACV coverage, new car replacement insurance has a deductible. A deductible is the amount that is removed from your insurance payout. For instance, if your vehicle will cost $40,000 to replace and you have a $1,000 deductible, the insurer will pay you $39,000.
What is Actual Cash Value (ACV)?
Actual cash value, or ACV, is what your car was worth just before it was declared totaled. After an auto accident, an insurance adjuster will inspect your vehicle. If it’s declared a total loss, the insurer will determine its ACV. This value can vary depending on your location.
For instance, in Florida, ACV is referred to as “replacement cost minus depreciation.” While in California, it’s what a knowledgeable buyer and seller agree the car is worth. And in New Jersey, it’s the cost to replace your car with one that’s very similar to the totaled one.
Agreed Value vs. Stated Value
If you have a classic, antique, collectible, or modern classic vehicle, you will want to look into the top and best classic auto insurance.
Classic vehicles do not usually depreciate in value like regular cars. Typically, you will have two payout options if your classic is declared totaled.
- Agreed Value: You and your insurer agree on your car’s value in advance. If your vehicle is totaled, you will get paid the agreed amount minus your deductible. If your vehicle appreciates in value, you can change the agreed-upon amount when you renew your policy.
- Stated Value: You can state what your vehicle is worth along with supporting documents. And your vehicle will be insured for that amount. However, if your vehicle is totaled, your insurer can choose to pay less of the actual cash value or stated value.
Agreed value is a better option for classic car owners because it guarantees that you will recover your financial loss if your vehicle is declared totaled. However, it is usually more expensive than the stated value. Always keep in mind that most standard insurers do not provide agreed-value coverage unless they collaborate with a special provider like Hagerty.
Can I Negotiate a Settlement with an Insurance Company?
Yes, you can try to negotiate with an insurer if you are not satisfied with the decision. Here is how you can do that: When the adjuster makes an offer, they should include an explanation of how they came up with the specified amount.
Request a copy of the value report if it is not added. If you do not agree with the settlement offer, you have the right to reject it and negotiate a new one.
However, before you make this negotiation, it is advisable to do research ahead of time.
Some of the documents you can add to support your negotiation include a list of your vehicle’s special features, the estimated retail value of the vehicle, and comparable sales of similar vehicles in your location.
The insurer does not have to accept your counteroffer. If you do not come to an agreement, there are other options you can go for. For instance, in Texas, you have the right to seek legal remedies such as arbitration, mediation, or a lawsuit.
When Do I Need Gap Insurance?
You may go for gap insurance if your car loan is more than your car’s worth if it is stolen or totaled. You may also need it if:
- You are leasing a car.
- You financed most of the value of your vehicle.
- Your vehicle depreciates more quickly than others. For example, luxury vehicles usually depreciate faster.
- You took out a loan on your car for 5 years or more.
- You rolled equity from your old car loan into a new one.
Generally, you don’t need gap insurance if you owe less than the value of your car. Or if you can afford to pay the gap between your car’s worth and what you owe on the loan if it is declared totaled or stolen.
