How do insurance companies determine car value?

Auto insurance companies may have formulas for determining value, or they may use an appraisal service. The goal of this process is to determine if your car can be repaired for a reasonable cost or if your car needs to be deemed a total loss. You can negotiate, but do your research.

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Mathew B. Sims is Editor-in-Chief and has authored, edited, and contributed to several books. He has been working in the insurance industry ensuring content is accurate for consumers who are searching for the best policies and rates...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance...

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Reviewed byDaniel Walker
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UPDATED: Apr 30, 2020

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Things to Remember...

  • Car value is determined after you file a claim with your insurance company
  • Insurance companies typically use their own formulas or Kelley Blue Book to determine your car’s value
  • If you think your insurance company isn’t valuing your car correctly, you can negotiate
  • To find a better insurance policy, use a comparison tool

When you file a claim with your auto insurance company after an accident, your insurance company will determine the approximate value of your car just prior to the accident.

This is because the insurance company needs to determine if your car can be repaired or if it is a total loss.

In general, your car can be repaired if the total repair bill minus your deductible is less than your car was worth just prior to the accident.

Your car is considered a total loss by the insurance company if the repair bill is higher than your car’s value. 

If you are worried about the level of coverage on your car or you want to find better insurance for a lower cost, a comparison tool can help make your switch easier.

Compare car insurance rates now by using our FREE tool above!

Why Insurance Companies Need to Determine Your Car’s Value

The only time an insurance company will determine the value of your car is when you get into a car accident and file a claim.

The goal of this process is to determine if your car can be repaired for a reasonable cost or if your car needs to be deemed a total loss.

For example, if you get into a car accident and the total cost to repair your car is $5,000, but your car is only worth $4,000, your insurance company would deem your vehicle to be a total loss.

Conversely, if your car repairs add up to $3,000 and your car is worth $4,000, your insurance company would repair your car.

  • You were in a car accident
  • You filed a claim with your car insurance company for repairs or replacement of your vehicle
  • You were not the at-fault driver

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How Auto Insurance Companies Determine the Value of Your Car

Your car’s value is calculated just prior to the car accident. Your insurance company is generally obligated to repair your car to its pre-crash condition or help you get another comparable car.

Depending on your insurance company, they may average the values or give you the highest value available.

Car insurance companies can use their own formulas for determining your car’s value, or they can use a site like Kelley Blue Book or NADA to determine your car’s value.

According to Kelley Blue Book, if you currently drive a 2010 Acura MDX with 50,000 miles on it, your car is currently worth $24,263 if it is in “very good” condition.

NADA values the same car between $20,475 and $26,875.

  • Your car’s value is determined at the price it was worth just prior to the accident
  • Kelley Blue Book or NADA may be used by your insurance company
  • You can negotiate the value of your car if you are unhappy with the amount your insurance company derived

Reasons Your Insurance Company Would Not Pay for Your Car Repairs

Under certain circumstances, you would be responsible for replacing or repairing your car out of your own budget even if you file a claim.

The number one reason for this is because you have liability insurance, and you were found to be the at-fault driver. Liability insurance only pays for the other driver and their vehicle.

While this protects you against a lawsuit, it does not repair or replace your vehicle or pay your accident-related medical expenses.

If you only have liability insurance and would like a better policy that covers you in the event you are in an accident and the at-fault driver, you can use an insurance comparison tool to quickly find numerous insurance policies.

  • You only have liability insurance
  • You were the at-fault driver
  • A comparison tool can help you find better car insurance

Car insurance companies will determine the value of your car after a car accident.

If the value of your car is more than your expected car repairs, your insurance company will repair your car to its pre-accident condition.

If your car repairs are more than the value of your car, your insurance company will give you a check for the value of your car minus any applicable deductibles or fees.

If you are concerned about whether or not your car will be repaired or replaced after an accident, an insurance comparison tool can help you find a policy that better meets your needs.

Start comparing auto insurance rates now by entering your zip code in our FREE tool below!

How do I know the value of my car for insurance?

When shopping for auto insurance, one of the things you need to know is how much insurance to get. As is the case with any insurance, you need to get enough insurance to cover the value of your car based on how hard it would be to replace it.

In other words, insurance is money set aside to cover the damages for a loss so that you can get a new one or at least have the damage repaired.

Therefore, it is important to understand what your car is worth at the time you get insurance.

Compare rates to make sure you have the right coverage. Enter your zip code into our FREE price comparison tool to get started!

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How to Assess the Value of Your Car

Several places are available to help you assess your car’s value.

These are just meant to be used as a point of reference when you need to find out how much your car is worth before you search for auto coverage.

Kelly Blue Book is considered one of the foremost authority sites on figuring out the trade-in value of your car as it is today.

It is based on factors, such as the age of the car, the mileage, the make, model, and year, as well as the color and other vehicle options.

The information from KBB gives you today’s trade-in value that you would likely get if you tried to trade in your car today.

A Test Case

We did this as a test case on this site for a 2004 Pontiac Grand Am (Red) with a sliding sunroof with over 100,000 miles and in good condition. The system told us that the trade-in value would be around $1200.

Remember, if you were in an accident in which you totaled your car, it would take that amount of money to replace it.

However, it may be tough to find a car in the same condition as yours, with the same approximate number of miles, and with the same options.

Therefore, you will want coverage for at least twice as much, in case you need to use the money to purchase a similar vehicle that is worth slightly more than yours

Using our case study, if we needed to replace this Grand Am with another one of similar quality, we would need to carry at least $2,000 of collision insurance to be on the safe side, in case we could not find one in the same condition as the one that was lost.

Keeping that in mind, you could compare via yours charts with various insurance coverages and see what totals are offered.

In general, the average amount of collision coverage in most auto policies is around $5,000. In our scenario on the Grand Am, this amount would be more than enough to cover a total loss.

About Comprehensive Plans

Many auto insurance companies offer comprehensive coverage which not only covers the loss in an auto accident but also applies to theft of property if your car is stolen or damaged by an act of God, such as a tornado, hurricane, or hail.

It is usually highly recommended for new cars.

You will want to inquire with your insurance companies to see if it is offered.

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How Insurance Companies Cover Large Collision Amounts

Remember that most accidents will not result in a total loss. Instead, they may require up to $5,000 or more to repair.

When you are in an accident where damage is done to your car, after you file a claim, an insurance adjuster will come to your house or place of business and assess the damage.

They will take notes on the specific points of damage, as well as whose fault the accident was attributed to, and they may ask for a police report from the local police who covered the accident.

Once they have all of this information, they will leave and call you a few days later with an assessment of what it will cost to repair it.

Provided that you have ample collision coverage, the adjuster will also assess damages from two other sources such as local car mechanic garages.

Once you come back with these figures, the adjuster will tell you that you must take the lowest estimate. They usually like to err on the low side.

Your Rights

Remember as a consumer you have a right to have your car repaired to as near new condition as possible. Mechanics and bodywork professionals should not take shortcuts to save money either for themselves or you.

They should use the money from the insurance company to repair your car to as good of condition as possible and rebuild any body work to the same condition as it was before the accident.

If you notice badly-done paint jobs or half-closed trunks after your accident, you have a right to appeal the adjuster’s decision to a lawyer or insurance settlement board.

Once you know the general value of your car, you can keep these figures in mind when shopping for insurance. Look at the other specs first, such as state liability amounts, bodily injury, and property damage.

These cover your costs to others if you are at fault in an accident. But focus on the collision insurance also, so that you know you are getting enough insurance to cover all damages and replacement if needed.

Calculating Deductible Amounts

The question of deductibles often comes up when searching for insurance as well and it is important. You will want to consider how much out-of-pocket expense that you can afford to pay to get your car fixed if you are in an accident.

For a $500 deductible, you would only pay $500 out of your pocket, and the insurance company would pay the rest. For a $1,000 deductible, you would pay $1,000, for example.

In the case of our Grand Am, with a $1,000 deductible, this person would end up paying all of the replacement costs. With the 2016 Honda Civic, it would be a substantial saving if the damages were significant.

The key to finding the best insurance and deductible amounts is to shop around until you see that you have found one that covers your cost of either repair or replacement in the event of an accident, and which does not require you to pay too much of an out-of-pocket expense for the repairs.

Compare rates from different insurance providers for the best rate! Enter your zip code in our comparison tool below to get started!

References:

  1. http://www.insurance.wa.gov/your-insurance/auto-insurance/totaled-car-rights/
  2. http://www.iii.org/article/how-are-value-my-car-and-cost-repair-determined
  3. http://www.kbb.com/car-values/
  4. http://www.nadaguides.com/Cars

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