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How Does Insurance Calculate the Value of a Car? 

  • Auto Insurance
  • Gerard Stevens
  • 6 minutes

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Accidents or your car getting totaled by it can bring a lot of trauma for you. But, what makes it more traumatic is when the insurance company starts the valuation of the car. When your car is totaled and you file a claim, the insurance company will pay you your car’s actual cash value (ACV), less your deductible. If you have been through this, you know how frustrating it is to accept the auto insurance company’s assessment of your car’s value.  

The estimate will be lower than you expected, and it is sometimes inadequate to cover what they still owe on the car. You’ll have questions about how the insurance company arrived at such a value. You can negotiate for a higher payout with them if you know the basics of how insurance companies value cars. Continue reading to know in detail about this and the actual cash value.  

How do insurance companies determine a car’s value? 

You can file a claim with your insurance company when your car gets totaled in an accident or flood. Usually, these are covered if you have collision and comprehensive insurance. Or, you can file a claim against the at-fault driver’s car liability insurance if you don’t have such coverage. Then the insurance adjuster will inspect your car and decide the actual cash value if it is declared a total loss. Be mindful that the definition of ACV differs based on the state.  

Find the cheapest insurance policy for your car

What is the actual cash value of my car? 

Your car’s actual cash value is how much it costs in the current condition or what you could reasonably get for it if you sell it today. It includes a value reduction for depreciation. And, since cars depreciate as soon as you drive them off the lot, the ACV of your vehicle will be less than what you paid for it, even if it isn’t that old. You have to file a claim once when your car becomes a total loss. The insurer will reimburse you after the inspection, minus your deductible. For instance, assume your five-year-old car is totaled, and you need to file a claim for the damage. The insurance company may decide that the car has lost one-third of its value due to depreciation and wear and tear over the past five years. 

How do insurance companies determine the ACV of my totaled car? 

While the process varies depending on the insurance company, some common factors calculate a vehicle’s actual cash value.  

  • The age of the car 
  • Pre-loss condition of the car 
  • The car’s mileage at the time of total loss 
  • Any previous accidents or damage 
  • Depreciation 
  • Whether you’ve made any alterations 
  • The resale and salvage value of the car 
  • The selling price of similar cars in your area 

Actual cash value vs. Replacement cost of a car 

The ACV considers the car’s depreciation while determining its value. Depreciation indicates the loss of a car’s value after purchasing it. Various factors like the year, make, model of the car, wear and tear, mileage, and accident history impact a car’s depreciation.  

At the same time, replacement cost is what you need to pay to buy a new version of the same or a similar car. This amount is higher than the actual cash value. 

The depreciation problem of ACV 

Even if you used the car for just a year, the actual cash value would be significantly lower than what you paid for your car. Experts say that driving a new car from the lot depreciates its value by around 10% and further decreases to 20% by the end of the first year. Be aware that your insurers can penalize you for the total distance covered to the stains on the upholstery within that year.  

Replacement cost insurance 

The actual cash value insurance won’t be enough to get you a new car. So, buying a car insurance policy that pays the replacement cost insurance can solve this problem. This policy uses the same methodology to find a car’s valuation. However, it then pays you the current market rate for the new car in the same class as your totaled vehicle. Replacement cost insurance can have significantly higher monthly premiums than traditional car insurance. 

How can I negotiate the actual cash value of my car? 

When the company comes with a settlement offer, they should include a written explanation of how they arrived at the figure. Ask for the valuation report if not included. If you disapprove of the settlement offer, you have the option of rejecting it and negotiating a new settlement figure. However, it’s always good to conduct research before making a counteroffer. These are some documentation you need to include to support a counter offer.  

  • Make a list of the features of your car. Ensure to point out any special features that the adjuster ignored, like leather seats or an entertainment package. You can also bargain for the price of permanently attached equipment, such as wheelchair lifts or toolboxes.   
  • Try to find out the car’s estimated retail value. 
  • Find out the comparable sales of similar vehicles in your area.  

Here’s more info on how to get the best settlement for your car! 

Some key info 

  • The insurance company determines the payout based on the value of the vehicle you were driving before the accident that wrecked it.  
  • Your insurance company will pay you the car’s actual cash value if your car gets into a total loss accident. 
  • You may be able to contest the insurance company’s valuation of your totaled car if you disapprove of it. 
  • Add a replacement car or gap insurance to your policy to ensure that you get enough compensation to replace the totaled car or pay off your loan or lease.  

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