How do insurance companies determine car value?

Auto insurance companies determine car value using formulas that are unique to their companies. In some cases, a car insurance company may use an appraisal service to estimate a car's value. This process aims to determine if your vehicle can be repaired for a reasonable cost or if your car is a total loss. Gap Insurance and Replacement Cost Coverage can save you from unexpected expenses.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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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, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Jul 16, 2021

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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 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 after an accident, auto insurance companies will determine car value before getting into the accident. This is because the car insurance company needs to determine if your car can be repaired or 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 before the accident.

If you are worried about the level of coverage or you want to find the best companies for auto insurance, our comparison tool can help make your switch easier.

Auto insurance companies may determine car value, but you shop around if you’re not happy with how your claim has been handled by using our FREE online tool above.

How do auto insurance companies determine car value?

What criteria do insurance companies use to total a car? Your car is considered a total loss by the car insurance company if the repair bill is higher than your car’s value.

Insurance’s totaled car value is calculated after you get into an accident. Although there may have been a valuation done when you first bought the car, that amount changes over time. Your car insurance company determines car value at the time of the accident, not at the time of the purchase. The only exception is if you have a new car replacement rider or an agreed value policy.

Auto insurance companies often go with what is most cost efficient for them. Continue reading to learn more about how car insurance companies determine car value after an accident.

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Why Auto Insurance Companies Need to Determine Your Car’s Value

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

This process aims 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

But what is ACV? Continue to the next section to learn more about ACV.

What is ACV?

Actual cash value, or ACV, is the value your auto insurance company pays after your car has been in a total loss accident or if your vehicle was stolen.

Your car insurance provider determines collision value by subtracting your car’s value and deductible you’re required to pay for collision or comprehensive coverage.

If you’re not sure that your auto insurance company won’t give you the money you ask for, add replacement cost to your policy. Follow the guide to the next sub-section to learn more.

The Difference Between Actual Cash Value and Replacement Cost

ACV may determine the vehicle’s value after an accident, but replacement cost will ensure that you get a new car in the event of a total loss.

Cars depreciate over time. Therefore, a replacement cost coverage will make sure your totaled car is replaced with a new car of the same make and model year, or it’s replaced with a car of equal value. Of course, the vehicle choice is up to you.

Other Challenges and Factors to Consider with ACV

What cars that are financed or leased? It’s clear that auto insurance companies pay for repairs, and sometimes they pay for a new vehicle. However, there might be a complication with financed and leased vehicles.

New vehicles tend to have expensive ACVs. Also, it’s in the best interest of the auto insurance customer to have full coverage. If possible, you might want to add a little more to full coverage to ensure unexpected fees don’t wreck your finances.

Gap Insurance Coverage

Whenever you finance a car or lease a vehicle, gap insurance pays for the difference you owe on your vehicle and the ACV when your car is totaled in an accident.

But how much is gap insurance? Here are a few auto insurance rates based on driving records and how they are affected by gap insurance.

Gap Insurance Comparison by Driving Record: Average Monthly Auto Insurance Rates
Driving RecordAverage Monthly Auto Insurance RatesAverage Monthly Auto Insurance Rates w/ Gap Insurance
Clean record$260$319
With 1 accident$342$400
With 1 DUI$410$468
With 1 speeding violation$306$364
Get Your Rates Quote Now

Compare RatesStart Now →

A clean driving record promises the cheapest auto insurance rate from any auto insurance company. However, gap insurance won’t promise you a new car, but you can get an add-on that will help you get a new vehicle. Let’s continue to find out more.

New Car Replacement

If your vehicle is new, it’s in your best interest to get a new car replacement rider. New car replacement ensures that your new car is replaced after your current car is totaled. This is one of the few exceptions to the actual cash value method that is usually how car insurance companies calculate car value after a loss.

Reasons Your Auto 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 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 if 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 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.

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How do I know the value of my car for auto 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 your car’s value 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.

How does the auto insurance company determine the value of a totaled car?

Your car’s value is calculated before a 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 auto insurance company, they may average the values or give you the highest value available.

Disputing an Auto Insurance Company’s Valuation of Your Car

Car insurance companies can use their formulas for the insurance valuation of cars. However, you check the value of your vehicle yourself through websites like Kelley Blue Book Car Values or National Automobile Dealers Association (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 by the fair market value it was worth just before the accident.
  • Your insurance company may use Kelley Blue Book or NADA.
  • You can negotiate the value of your car if you are unhappy with the amount your insurance company derived.

What if your auto insurance company’s estimates are off? You can dispute an auto insurance company’s valuation. Continue reading to learn more.

How to Estimate 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 for figuring out your car’s trade-in value as it is today.

It’s based on factors such as the age of the car, mileage, 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.

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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 if 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 if we could not find one in the same condition as the one that was lost.

Keeping that in mind, you could compare via your 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. This amount would be more than enough to cover a total loss in our scenario on the Grand Am.

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.

How Auto 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 business and assess the damage.

They will take notes on the specific points of damage and 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 to assess 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.

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Your Rights During a Claim

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

They should use the insurance company’s money to repair your car to as good of condition as possible and rebuild any bodywork 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 your car’s general value, 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 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 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 our Grand Am case, 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 found one that covers your repair cost or replacement cost if an accident happens and which does not require you to pay too much of an out-of-pocket expense for the repairs.

How Auto Insurance Companies Determine Car Value: The Bottom Line

A total loss after an accident is very inconvenient for both you and your finances. To be prepared, have the necessary coverage options in place to help you get a new car with much trouble.

However, double-check the auto insurance company’s valuation of your vehicle. When in doubt, hire a professional. If it’s clear that your vehicle is worth more than what the car insurance company told you, get a second opinion by researching websites like Kelley Blue Book and NADA.

You might want to look for a new policy somewhere else if you aren’t happy with how your insurance company determined your car’s value, so we’ve provided a FREE comparison tool to help you find affordable auto insurance.

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