Friday, December 8, 2023

How Do Insurance Companies Determine Car Value

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Most individuals know that vehicle insurance is important. It is there to protect them in a variety of different types of circumstances. Most often claims are as a result of collisions. The general assumption is that if a claim gets put in that the vehicle will get repaired. There are times when the damage is so severe that the insurance company will determine that it is a write-off.

What Is The Total Loss Settlement Process Like

A driver whose car has been totaled in an accident will need to be in contact with their insurance company. The insurer will examine the vehicle and calculate its value based on the factors discussed above, according to Kelley Blue Book. Then, the policyholder will be offered a settlement.

During this stage of the total loss process, consumers may want to do their homework. By reading up on their policys coverage and researching comparable vehicle values, consumers may determine that they are owed more in a total loss settlement.

Consumers who believe they are owed more in a total loss settlement may want to compile relevant documentation to argue their case to the insurance company. Enlisting the help of a qualified total loss attorney can help during this process.

When in doubt, an insurance company will usually be more than willing to offer guidance to the policyholder. However, consumers can also seek legal help from an experienced insurance attorney who can help them fight their insurance company to maximize a settlement.

After a reasonable settlement is reached, this money will be dispersed. If the consumer still owes money on a loan for the totaled vehicle, they will need to pay off the remaining balance.

Typically, total loss settlements will be used to pay a financial institution before any money is directed to the consumer. If there is any money left after a loan is paid off, this money will be dispersed to the car owner.

How Do Insurance Companies Calculate Actual Cash Value

Insuring your home and contents is a vital part of any financial plan, but not all insurance policies are created equal. While the vast majority of homeowners insurance policies pay out the replacement cost of an item, some policies pay out the actual cash value of the item in question.

Understanding key insurance terms like this is pretty important. You dont want to experience any unpleasant surprises after filing an insurance claim.

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What Happens When You Total A Car

If someone gets into an accident and their car is damaged, the first thing to do is make sure they and their passengers are not injured. Then, it is important for the driver to call their insurance provider as soon as possible.

The insurance company will usually send an adjuster to evaluate the damage to the vehicle. The adjuster will determine if the damage was extensive enough to consider the vehicle a total loss.

Additionally, the insurance adjuster will determine the amount of compensation for which the policy holder is eligible. In the case of a total loss claim, the insurance adjuster will calculate total loss value.

If a car is considered totaled, it will be given a salvage title.

How Do You Determine The Value Of A Vehicle That Has Been Stolen Or Declared A Total Loss

How do car insurance companies determine replacement value?

Your insurance policy is the key

If your vehicle has been stolen or declared a total loss, your insurer considers various factors to determine the value of your vehicle at the time of your claim settlement. Of course, much depends on the insurance coverage you had when the loss occurred. What choices did you make when you purchased your insurance policy? Did you choose to be insured for the value of the vehicle at the time of the loss as per your basic automobile policy , or did you opt to be insured for the value of the vehicle with no deduction for depreciation by adding the Limited Waiver of Depreciation coverage to your policy? The answer to that question will have an impact on the amount of your settlement.

Actual cash value at the time of loss or damage

  • Corresponds to the depreciated value of your vehicle, that is, its market value just prior to the loss.
  • This amount is determined by calculating the average value of comparable vehicles on the market, then adjusting it to take into account the condition of the stolen or damaged vehicle .

Limited Waiver of Depreciation

  • Determined by your insurer, this amount corresponds to the least costly of the three following options:
  • The manufacturers suggested retail price
  • The actual purchase price of the vehicle and its equipment
  • The actual cost of replacing the vehicle with a new one of the same make and model similarly equipped

A few telling examples

Its all a question of value

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What Is A Total Loss And How Is It Determined

Your insurance company declares your car a total loss when it costs more to fix the damage than the cars actual cash value or when repair expenses are greater than a percentage of its actual cash value .

Say your car has a fair market value of $20,000. If you have $16,000 worth of damage, thats 80% of the fair market value. In states with a total-loss threshold below 80%, it would be considered totaled. If you could sell your vehicle minutes before your accident, how much money could you get for it?

How Does A Claims Adjuster Determine The Fair Market Value Of My Vehicle

If your vehicle will be totaled, the Fair Market Value is used to determine the amount of money you will receive to get a replacement vehicle. Unfortunately, this normally results in you taking a loss, such as when the replacement vehicle is not as good as your original car.

The following steps are done to check the fair market value of your vehicle:

  • A Kelly Blue Book Value is run together with the features of your car.
  • Dealership sales reports for the model and make of your car are obtained.
  • All receipts for repairs and parts installation done to your car are compiled.
  • Price appraisal from a third-party to compare the amounts are utilized.
  • Always remember, a claims adjuster works for the insurance company. They will always have the best interest of their employer, and not yours. Therefore, it is essential to understand this process thoroughly.

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    Actual Cash Value Vs Replacement Cost

    There’s a big distinction between the insurance value of your car as determined by the insurance company and the amount it actually costs to purchase a suitable replacement. The insurance company bases its offer on actual cash value . This is the amount that the company determines someone would reasonably pay for the car, assuming the accident had not happened.

    Actual cash value usually takes into consideration factors including depreciation, wear and tear, mechanical problems, cosmetic blemishes, and supply and demand in your local area. For example, State Farm explicitly references its insurance value car calculator: We base your vehicles value on its year, make, model, mileage, overall condition, and major optionsminus your deductible and applicable state taxes and fees.

    Before purchasing gap insurance, take time to compare premiums and costs from the best car insurance companies to ensure that you get a reasonable deal.

    How Do Insurance Companies Determine The Value Of A Totaled Car

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    When you are in an accident that does sufficient damage to your car, the insurance company considers the car a total loss. That does not necessarily mean you get the full retail value of your vehicle from the insurance company. Instead, you receive an amount, determined by the insurance company. What gets confusing for many people is that insurance companies may not use the same guidelines to determine the value of your vehicle as someone purchasing it in pre-accident condition.

    The criteria listed below are just a few factors used by insurance companies to determine the value of your totaled car.

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    Learn What Defines A Car As Totaled How To Determine A Totaled Car Insurance Value And How To Estimate Your Totaled Car Insurance Payout


    A totaled car is a car which is considered to be a total loss after an accident. This usually means that it is damaged to the extent that it is not worth repairing. For example, if the car is worth $10,000 and needs $7000 worth of work, it’s not worth it and will generally be labeled as a total loss. Generally, the cutoff is somewhere in the 70% to 75% range. In this case, the car is considered to be a total loss except for the value of scrap metal or potentially salvageable parts. An appraiser can check the damage done to a wrecked vehicle to determine the totaled car value.

    Cars that are totaled are generally older models, as they tend to have very low resale values. When severe damage is done to an older model, the expense of replacement parts and installation can easily exceed the value of the car. Auto appraisers can estimate the expense of repairs and compare it to the car’s value to determine if a car is in fact totaled.

    If a car is totaled and covered by insurance, the owner should receive the value of the car in cash from the insuring company. This money can then be used to buy a new car. Because of this, most people generally decide not to attempt to repair totaled cars, however, another party will sometimes purchase them as a project or for an automotive class.

    The Gap Insurance Solution

    Like the replacement cost issue, this problem has a solution. You can add gap insurance to your policy to ensure that you never have to deal with a remaining balance on a totaled car.

    This coverage pays for the cash value of your car as determined by the insurance company and pays for any deficiency balance left over after you apply the proceeds to your loan.

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    I Want To Keep And Repair The Car Myself

    Sometimes because of sentimental attachment, people want to keep and repair their cars after the accident. In cases like this, several factors, the adjuster has to take into consideration before the owner gets possession of the car. Some of these factors include is this permitted by state law, and then the salvage yard is contacted to see what is the fair market value on the car. When the fair market value is determined, this amount gets deducted from your settlement you get your car back with the remainder of the settlement along with a salvage title. The salvage title will not allow you to register your car until you make all the repairs.

    The cost and stress of fixing a wrecked or totaled vehicle can be devastating. Knowing what the language of your insurance policy is regarding totaled cars and know the state laws will make this a little easier to handle.

    Do You Have An Applicable Gap Car Insurance Policy

    How do insurance companies determine a car

    What is GAP insurance? What happens when your car is totaled and you still owe money on it?

    The only true protection is to have GAP insurance on an auto loan that covers the financial gap of the loss of a total car.

    The table below details what car insurance companis include in their GAP coverage.

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    Vehicles depreciate rapidly, sometimes losing as much as 25 percent of its value as soon as they are driven off of the dealers lot.

    If a vehicle is financed, then you are most likely making monthly payments that are primarily paying off interest and only a little principal.

    How does GAP insurance work if a car is totaled?

    If your car is totaled in an accident while you are in this situation then chances are the cash value of your car will not be enough to pay off the loan in full.

    This means that you are still obligated to make car payments for a car that will no longer be in your possession.

    You can take a chance on not having total loss coverage or you can purchase GAP insurance for a fairly hefty price.

    Dealerships will sell GAP insurance for around $500, but you can add it to your car insurance policy for about five percent of your collision and comprehensive coverage.

    GAP helps pay for the difference between the actual cash value and the amount still due on the loan in the event a car is considered to be a total loss.

    Watch this video to learn more about how GAP insurance works.

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    What Is Actual Cash Value

    Actual cash value is the amount of money your car is worth just before an accident occurs. Each insurance company has its own proprietary software that factors a number of things when calculating your vehicles actual cash value.

    Even though most people dont have access to insurance company software, they can research online to obtain an idea of how much a car is worth. Sources such as Kelley Blue Book, Edmunds, Carfax, and Autotrader are all available to help estimate a cars value. Some of these websites are updated daily.

    Keep in mind insurance companies do not rely upon third-party sites to determine actual cash value payout amounts. The insurance company determines total loss by its own evaluation and software, which takes the aforementioned into account.

    Thats why its a good idea for vehicle owners to figure out how to determine total loss value of a vehicle themselves if they believe their insurance company has offered a far lower amount for the vehicle than it is worth, the owner may be able to dispute the appraisal.

    Estimating The Cost Of Repairs

    If its not obvious that a cars been totaled during the initial inspection, the adjuster will then compare the fair market valuation with the estimated cost of parts and labor to figure out just how much to pay.

    You will either receive a claims settlement payment to pay for all of the reasonable repair costs or to pay for the cars Actual Cash Value.

    You are paid out for the ACV only when the cars totaled. This is why its important that you review the estimates closely and the valuations closely before accepting any type of claims settlement.

    If the estimates are a little too high or the adjuster valued the car too low, it could lead to a salvage title that couldve been avoided if you wouldve known to speak up.

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    Actual Cash Value And Totaled Car Value

    Its a bit difficult to put a definite amount on your totaled car but your insurance company will have its method for computing your cars ACV.To determine the ACV and totaled value of your car, your insurer will make use of your cars year, make, model, mileage, and damage done to compute their results.If your car is new and still in great condition, then you should expect a higher ACV than when your car is old and worn out.

    If your car is old and badly damaged, your insurance company is likely to write it off and not bother fixing it as it wont be worth it.Your insurance company calculates the price they can pay based off of past auction data and the costs of getting rid of the car. They will subtract this amount from the ACV to determine how much they would pay you. Lets use our previous example of a totaled car with an ACV of $10,000. 10 percent of this value would be $1,000. This means that $1,000 and your deductibles would be subtracted from the ACV of your car to end up with the amount that youll be paidif you want to keep your totaled car.

    How Does Actual Cash Value Differ From Replacement Cost

    How to determine the value of your car after an accident

    In the simplest of terms, actual cash value pays what an item is worth at the time of the claim, while replacement cost pays the cost to replace the same item at todays price. This means that if you make a claim for damages to the sofa you paid $2,000 for in 2008, the insurance company may pay $2,500 so that you can replace it with a similar sofa at todays price.

    Similarly, if you own clothing that was ruined by a burst water pipe, your insurer would pay the cost to buy new clothing of a similar quality.

    The difference between what you would receive with Actual Cash Value versus Replacement cost can be significant. Be sure you understand the coverage youre being offered before you commit to a buying or renewing your policy.

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    What Affects The Auto Insurance Rate Quotes I Receive

    Depending on state laws, which can restrict the type of information an insurance company may use, these factors will usually affect your rates:

    Who you are: Age, gender, marital status, ZIP code, number of years youve been licensed, homeownership, occupation, education and even grades

    Your record: Accidents, traffic violations, insurance history, credit history, past claims of all types

    What and how you drive: Owned or financed, current value, annual mileage, claims record for all owners of that model, anti-theft devices and safety features, whether you use the car for business

    How much coverage you want: Liability , whether or not you buy comprehensive and collision , medical payments, uninsured motorist, or extras such as rental reimbursement or towing.

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