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How your Car is valued by Insurance Companies? : Car Insurances Details for Newbies:

Updated: Mar 4, 2021

You can negotiate a better deal if you know these details.

When a vehicle is totaled in a crash, the insurance policy owes you the totaled car worth—or, to be more exact, what it claims the value to be. If you do have a car loan, you can use this money to pay off the interest on the totaled car, or you can use it to buy a new car.

Accepting the auto insurance company's estimate of the car's worth is the most difficult aspect, according to almost everyone who has been through it. Almost often, the estimate is much smaller than you expected, and the amount you collect is insufficient to substitute the object with one that is equivalent.

Car insurers' valuation approaches are esoteric, depending on abstract statistics for which they are diligent not to share details. A consumer's right to contest a low-ball bid by a car insurance provider is limited by this knowledge asymmetry. Knowing the fundamentals of how insurance firms value vehicles and the terms they use, on the other hand, will put you in a better position to bargain.


Key points you should notice :

  • Auto insurance is intended to keep you whole if your car is destroyed or stolen, so how much does your insurer believe your car is worth?

  • Since consumer value and replacement cost will vary, make sure you consider what the insurance protects.

  • To determine the cost of maintenance, insurance firms often employ an adjuster to inspect the car and select a preferred garage.


Valuation Process for your Car Insurance

When you inform the insurance provider of a car accident, an adjuster is sent to evaluate the injury. The adjuster's first job is to determine if the vehicle can be graded as totaled. Even if the car can be repaired, an insurance company can deem it totaled. According to, a company chooses to total a vehicle if the cost of fixing it reaches a certain amount of its worth, varying from 51 percent to 80 percent.

Some states, however, require or have guidance for this percentage.

The adjuster then performs an assessment and assigns a value to the car, meaning it is totaled. The accident damage is not taken into account in the assessment. The adjuster is attempting to assess what a fair cash offer for the car would have been immediately before the accident.

The insurance firm then employs a third-party appraiser to come up with its own appraisal for the car. This is done to prevent the appearance of dishonesty or deceit, as well as to subject the vehicle to a different valuation methodology. When making an offer to you, the company takes into account both its own judgment and that of a third party.


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The insurance value of your car VS The amount it actually costs to purchase a suitable replacement

The difference between the insurance value of your vehicle as calculated by the insurance provider and the cost of buying a suitable substitute is important. The insurer's bid is based on the actual; cash value (ACV). This is the amount the insurer believes a normal person would pay for the vehicle if the accident had not occurred. Depreciation, wear and tear, technical issues, cosmetic defects, and supply and demand in your local region are all factors in evaluating the value.

And if you bought a car brand new and just drove it for a year before the crash, the ACV would be much lower than the price you paid for it. According to, merely driving a new car off the lot depreciates it by approximately 10%, and depreciation accelerates to 20% by the end of the first year. Indeed, the insurance provider penalizes you for anything from cumulative miles on the odometer to soda stains on the upholstery over the course of a year.

The ACV bid would also be cheaper than the replacement cost, which is the cost of buying a new car that is close to the one that was wrecked. Your next car would be a step down from your old one unless you can supplement the insurance premium with your own money.

Purchasing auto insurance that covers the replacement cost is one solution to this issue. This form of policy uses the same approach to total a vehicle, but instead of paying you the current market rate for a new car in the same class as your wrecked car, it pays you the current market rate for a new car in the same class as your wrecked car. Replacement cost insurance rates can be considerably higher than standard auto insurance premiums monthly.

Challenges you might face in proceedings

Frequently, the amount paid by an insurance provider on a totaled car is insufficient to cover the amount owing on the wrecked vehicle. This could happen if you run a new car soon after purchasing it. The car has taken a major initial depreciation hit, but you've only had a few months to pay off your loan. This would also happen if you took advantage of a special loan package that reduced or excluded your down payment. Although these services help you stop having to spend a large amount of money to purchase a vehicle, they almost always result in you driving away with negative equity. If you complete the car before restoring a positive equity position, this becomes an issue.

When your premium check isn't enough to pay off your car loan in full, you'll have a deficiency balance. The lender is particularly aggressive in recovering this unsecured debt because the collateral that once protected it has been lost.

This dilemma, like the cost of replacement, has a solution. Add gap insurance to your auto insurance policy to prevent having to deal with a balance owing on a totaled vehicle. This policy includes the cash value of your vehicle as calculated by the insurance provider, as well as any outstanding deficiency balance after you've paid off your loan. Replacement cost compensation, including void coverage, increases the insurance premium. However, if you fall into one of the above conditions, you should be mindful that a deficient balance might be more likely in the event of an accident.


To help their work, Newsmusk allows writers to use primary sources. White papers, government data, initial reporting, and interviews with industry experts are only a few examples. Where relevant, we also cite original research from other respected publishers.

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