When your fomite is totaled in an accident, your indemnity company pays you for the respect of the totaled car—or, more accurately, it pays you what it claims the rate to be .

closely everyone who has been through this work can attest that the most frustrating region is accepting the car policy party ’ s appraisal of your car ’ sulfur value. Almost constantly, the appraisal comes in lower than you anticipated, and the come you receive is not enough to purchase an apples-to-apples replacement. sometimes, it is not even enough to cover what they still owe on the car .

Confounding the issue is the fact that most customers are unfamiliar with the methodology used by insurance companies to value cars. The evaluation methods of car insurers are esoteric, relying on abstract data, the specifics of which they are careful not to reveal. That makes it unmanageable for a consumer to challenge a low-ball propose from a cable car insurance company .

Knowing the basics of how insurance companies value cars and the terminology they use can bring you to a stronger status from which to negotiate .

Key Takeaways

  • A car insurance payout is determined by the value of the vehicle you were driving before the accident that wrecked it.
  • A standard insurance policy does not pay you the cost of an equivalent new model.
  • Nor does it guarantee a payment equal to the amount you may still owe on the car.
  • Replacement insurance and gap insurance can eliminate those hazards but are costly additions.

Understanding Car Insurance Claims Valuations

When you report a car accident to your insurance company, the party sends an adjuster to assess the wrong. The adjuster ’ sulfur first gear orderliness of business is deciding whether to classify the vehicle as totaled .

An insurance party may consider the car to be totaled even if it can be fixed. broadly speaking, the company decides to total a car if the monetary value to repair it exceeds a certain share of its rate, anywhere from 51 % to 80 %, according to Insure.com. Some states mandate or provide guidelines for this share : Alabama, for example, sets it at 75 % .

Assuming the fomite is totaled, the adjuster then conducts an appraisal and assigns a value to the fomite. The price from the accident is not considered in the appraisal. What the adjuster seeks to estimate is what a fair cash offer for the fomite would have been immediately before the accident took put .

adjacent, the indemnity company enlists a third-party appraiser to issue its own estimate on the fomite. This is done to minimize any appearance of familiarity or underhandedness and to subject the fomite to a unlike evaluation methodology. The company considers its own appraisal and that of the third base party when making its offer to you .


It may be potential to hire your own appraiser if you disagree with your indemnity caller ‘s valuation, though you may need your insurance company ‘s approval to do therefore.

actual Cash Value vanadium. substitute cost

There ‘s a big distinction between the policy value of your car as determined by the indemnity ship’s company and the amount it actually costs to purchase a suitable refilling. The indemnity party bases its offer on actual cash value ( ACV ). This is the sum that the company determines person would reasonably give for the cable car, assuming the accident had not happened .

actual cash value normally takes into consideration factors including disparagement, wear and bust, mechanical problems, cosmetic blemishes, and provision and demand in your local area. For exercise, State Farm explicitly references its policy rate car calculator : “ We base your fomite ’ s value on its year, make, model, mileage, overall condition, and major options—minus your deductible and applicable submit taxes and fees. ”

Before purchasing break indemnity, take time to compare premiums and costs from the best car indemnity companies to ensure that you get a fair deal .

The Depreciation Problem

even if you purchased a car new and only drove it for a year before the accident, its ACV will be importantly lower than what you paid for it. Simply driving a new car off the lot depreciates it by a much as 10 %, and depreciation accelerates to 20 % by the end of the first year, according to Edmunds.com .

indeed, the indemnity company dings you for everything from the miles on the odometer to the sodium carbonate stains on the upholstery accumulated during that year .

The amount of the ACV put up is inevitably going to be less than the replacement price —the total it costs you to purchase a new vehicle like to the matchless that was wrecked. Unless you are willing to supplement the policy requital with your own funds, your following car is going to be a measure devour from your old one .

successor cost insurance

A solution to this problem is to purchase car insurance that pays the substitution cost .

This type of policy uses the same methodology to total a vehicle but, after that, it pays you the current market rate for a new car in the lapp classify as your wrecked car .

The monthly premiums for surrogate cost indemnity can be significantly higher than for traditional car insurance .


If you total your car shortly after buying it, you could wind up with negative equity in the car, depending on your finance deal. That is, the policy requital could be less than you owe on the vehicle.

When Valuation Falls Short

The situation can get worse if the car is relatively newly. The sum the indemnity party offers for the totaled cable car may not be sufficient even to cover what is owed on the bust up cable car .

This may occur if you wreck a new car concisely after buying it. A new car takes its biggest valuation hit when its new owner drives it off the fortune. If an accident occurs within a year or then, it ‘s probably that the return for the totaled car will be less than the owner owes on it .

This becomes more probably if the buyer has taken advantage of a especial financing offer that minimized or eliminated the down requital. While these programs surely keep you from having to part with a boastfully chunk of cash to buy a car, they about guarantee that you drive off the draw with minus fairness .

When your insurance check can not pay off your car loan in full, the sum that remains is known as a lack balance. Because this is considered unbarred debt—the collateral that secured it is now destroyed—the lender can be aggressive about collecting it. This can include seeking a civil judgment against you to compel you to pay what ‘s owed .


If a lender is able to obtain a court judgment they can then pursue means to collect the insufficiency remainder, including engage or bank report garnishment .

The Gap Insurance Solution

Like the substitute cost issue, this trouble has a solution. You can add gap indemnity 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 policy caller and pays for any lack symmetry left over after you apply the proceeds to your loan .

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