How Does Insurance Determine The Value of A Car?
If you’ve ever been in a car accident, you know it can be a lot of drama. Aside from any health-related issues, you’ll probably also have to deal with damage to your vehicle.
Whether the accident was your fault or caused by another party, you’ll want your car repaired or replaced as soon as possible.
This is where things can get messy. In the unfortunate event your car is totaled, you are typically at the mercy of the insurance company’s adjuster, who ultimately determines the value of your car.
Which companies are used to determine a car’s value?
This isn’t really an industry secret. There are three companies an insurance adjuster typically relies on to determine a vehicle’s value:
1.Kelly Blue Book
2.Edmunds
3.Nada
Loss Valuation Methods
However, each company uses a slightly different valuation technique. Who is the best? It’s hard to say. But whichever company determines your car’s value to be the highest is likely the company you would agree with.
Often times, your opinion will differ from that of your insurer, and how much money you receive for the totaled vehicle will depend on your policy language. Specifically, the valuation method you agreed to; either replacement cost or actual cash value.
Unlike homeowner’s insurance, replacement cost is not an option for every car on an auto policy. On the typical policy, replacement cost is only offered on newer vehicles.
Usually your car can’t be more than two years old, or in some cases, three years old (the latter being rare).
This is basically because a car’s value depreciates quickly. Insurance companies would lose quite a bit of money if they were to agree to replace a three or four year old car with a new one. If this were common practice, we would all be paying much higher insurance premiums than we do now.
Actual Cash Value (ACV)
Actual Cash Value is determined by taking a vehicle’s replacement cost minus depreciation. This is the most common valuation method employed by auto insurance companies.
For example, say you purchased a $20,000 car in 2007. In 2010, your car is totaled and needs to be replaced. Since cars lose most of their value in the first couple years, your $20,000 car is now only worth $14,000…no matter what you still owe on it, which would likely be in the $15,000-$17,000 range after three years, depending on down payment.
That could put you in a precarious position. A check from your insurance company for $14,000 would leave you with as much as a $3,000 auto loan or lease balance deficit.
This is where gap coverage, also known as loan or lease coverage, would come into play. If you have a newer vehicle, less than two years old, it might be a good idea for you. For an additional premium, your insurer will pay the difference between what your car is worth and the outstanding balance on your current loan.
Stated Value:
Finally, there is stated value physical damage coverage, which is normally reserved for classic cars or any other vehicle whose value may be hard to determine. Ultimately, you and your insurer agree on the vehicle’s value prior to policy inception. You will likely have to produce an appraisal from a reputable source to back up your proposed value.
Tip: Keep in mind that if the accident is your fault, you would need to have physical damage coverage in place to ensure your car is repaired or replaced by the insurance company. That includes both collision and comprehensive coverage, assuming the accident was the result of anything other than a collision.
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