How Do Insurance Companies Value Cars?

Matthew Lloyd
May 13, 2021
Matthew Lloyd

How Do Insurance Companies Value Cars?

When a car is totaled in an accident, it brings about several unpleasant thoughts. Apart from the safety of the individuals involved in the accident, there are additional factors that need to be considered. A call to the insurance agency is a crucial step to take. Once the accident has been reported, negotiations for the cash value of your car need to occur. During this step, many people find themselves in an unexpected situation where the value paid is not as high as expected.

Taking out insurance for a car should not be done hastily. It is important for a person to understand the different terms used and know how they can get the best value for their money. With this in mind, understanding how do insurance companies value cars needs to be an important educational factor when signing up for this type of plan.

Initiating the Valuation Process

Once an accident is reported, there is a number of processes that occur before the insurance provider offers a cash value of your car. It is important to start by learning more about the initial process.

The first step usually includes the collection of all data related to the accident. This may include a request for a police report, too. If third parties were involved in the accident, then details of these individuals also need to be reported.

All of this data will be sent to an adjuster. This is an insurance professional and experienced individual who will assess the report, as well as the damage associated with the car.

Before proceeding, the adjuster first needs to decide whether or not the car is in a repairable state. This may include getting the car looked at by a licensed mechanic. When repairs exceed a certain dollar amount or percentage of the car, or they do not seem possible, then the adjuster will classify the car as totaled.

The specific value at which the car will be considered totaled depend on the insurance provider and state. As an example, in Alabama, cars with repair costs that yield to an amount that is 75% or higher than the car’s value will be considered totaled.

In cases where repairs would cost lower than a car replacement, the adjuster may consider not marking the car as totaled. In this scenario, the adjuster might rather prefer that the client gets the car fixed.

How Insurance Providers Determine the Cars Value

One of the major issues with learning how do insurance companies value cars would be the fact that the specific calculation is often considered a trade secret. Only those who work directly with this formula tend to know exactly how the evaluation process works.

Still, there are a couple of principles that people should know. This can at least help the person understand when they should dispute an offer.

Start by considering the difference between replacement cost and actual cash value, often referred to as ACV. When making a claim, the replacement cost is not used. Instead, the insurance provider will consider the “actual cash value” of the car at the moment the claim is submitted.

The company will take the value into account while also making deductions for factors like:

  • Mechanical problems
  • Wear and tear
  • Depreciation
  • Supply and demand
  • Cosmetic blemishes

Once these particular factors are deducted, the car's general value tends to be reduced significantly. Thus, it is important to consider the specific deductibles noted by the insurance company. If no details are provided, then you should demand they provide you with appropriate information.

Tips to Get the Most Value

Getting maximum value from an insurance provider is essential. This means being able to get a higher cash value in case of an accident too, particularly when the car is totaled. When looking for car replacement coverage and general auto insurance, it is important to compare multiple options. Avoid simply going with the first one to save time. Instead, a person should spend some time sitting with all quotations, see what each agency offers, and then make an appropriate decision.

Using a website like OfficialCarInsurance.com can be a great help with this process. This website allows the customer to enter their zip code and a few additional details, then the program automatically searches for the best insurance offers based on the data provided. Multiple offers can be presented, along with details on the features that each company offers.

Conclusion

The valuation process when a person is involved in an accident can sometimes feel unfair. The amount payable to the car owner is often significantly lower than expected. This can make the replacement of the car difficult, as the individual would not be able to cover the costs with the cash value provided. Consider the tips we shared in this post to help drive your decisions when taking out a new policy or when you are looking to make a switch to a new provider.