How Do Car Insurance Companies Determine the Value of a Vehicle?



Have you ever heard the phrase, “This car is totaled?” This phrase doesn’t relate strictly to the fact that there is extensive damage, though that’s what many insurance policy holders think – right up until they get into an accident and that term takes on a new and more accurate meaning. In truth, a car is only considered totaled by the insurance company if the cost of repairing the vehicle exceeds the value of that vehicle.

To determine whether a car is totaled in an accident, the insurance company must have their own assessment of how much the car is worth. The frustrating part of this is the amount that is typically given by insurance companies. Regardless of how much a person spent on their vehicle or how much it is actually worth, the insurance company will likely give a low-balled figure that might not even pay off how much one still owes on the car, much less furnish them with a new vehicle after an accident.

There may not be much that the average consumer can do to contest the valuation given by their insurance company, but it does help to understand how car insurance companies come to this figure in the first place.

How a Vehicle is Appraised

Once a vehicle has been declared totaled by an adjuster, the same adjuster then proceeds to evaluate the monetary value of the vehicle in question. The actual damage caused by the accident is not factored into this figure, as the amount declared is usually an amount that would have been a decent offer for the car prior to it being totaled.

This number is referred to as the actual cash value (or ACV) which takes into account any depreciation of the vehicle. Wear and tear, mechanical issues and cosmetic concerns will also weigh into the cash value that’s appropriated toward the vehicle. Sometimes, the demand for that particular vehicle in your area will impact the amount offered as well.

Before finalizing this figure, however, insurance companies bring in third-party appraisers to conduct their own assessment. This dispels any concerns regarding impropriety. The two numbers are then compared, and a final offer then made to the vehicle’s owner with both of these appraisals in mind.

Enhance Your Car Insurance Policy

Many people are unsatisfied with the ACV of their vehicle as determined by their insurance company, as this amount is usually too small to pay off a car that’s been totaled or replace it in full. To combat this problem before you are ever in an accident, it is advisable to purchase a car insurance policy that will repair or replace your vehicle.

These kinds of policies make use of the same appraisal procedure as outlined above but will provide you with the current market rate of the vehicle.