If your car is ever totaled in an accident, your insurance company will pay you for the value it determines your car to have when it was totaled. So how do insurance companies value cars, exactly? Most insurance companies don’t go into a lot of detail about how they calculate that value, so it’s common for drivers to be unsure of what their payouts will be. Understanding how insurance companies value cars may help you to negotiate a higher payout if your vehicle is ever totaled.
When an insurance company makes you an offer for your totaled car, it bases that offer on your vehicle’s actual cash value. The actual cash value is what the company believes someone would reasonably pay for your vehicle at the time if it weren’t in an accident.
The actual cash value of a car accounts for depreciation. If you bought the car just six months ago, its actual cash value would still be less than what you paid for it because of depreciation.
In comparison, a car’s replacement value would be the amount that you would have to pay to buy a new version of that same car. The replacement value is higher than the actual cash value.
Car insurance companies have various formulas and resources they use to determine the actual cash value of a totaled car. Many companies use software that helps calculate the value based on data like the vehicle’s make, model, age, mileage, and more. The current market value of comparable vehicles can also impact your vehicle’s value.
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You can negotiate with your car insurance company, but you’ll need to do some research of your own. To get your own car valuation, you can use an online tool like Kelley Blue Book to get an estimate on your vehicle’s value. In addition to this figure, research what similar vehicles are selling for in your area so you have multiple examples of comparable value.
If you find information indicating your vehicle’s actual cash value is higher than what your insurance company has presented, you can approach the company and ask them to reevaluate the value. Present the information that you’ve gathered and explain why you believe the value should be higher.
Since car insurance companies pay claims based on a vehicle’s actual cash value, it’s possible that you might receive less than the amount that you owe on your loan for a newer vehicle. You will be responsible for making the remaining payments on your auto loan, even though your vehicle is totaled. Gap insurance can help prevent this situation and will help pay for any remaining “gap” between your insurance payout and what you owe on a loan. You can get free quotes for gap insurance online today to explore your coverage options.
