How do insurance companies determine car value?

Different auto insurance companies have different methods of determining a car's value. You have little say in whether or not your insurance company totals your car after an accident, but you can appeal their decision. Learn the details.

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Feature Writer Rachel Bodine

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 Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: Jun 1, 2022

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Things to Remember...

  • Car insurance companies have in-house systems to determine the value of a car that’s been significantly damaged 
  • The total loss value is dependent on the value of the car just prior to the accident 
  • Vehicle owners have the right to appeal value decisions and negotiate a higher value

After a car accident, vehicle owners file a claim for the damage. The insurance company typically needs to determine what the car’s value was just before the accident occurred. 

Insurance companies use a proprietary formula to calculate the value of the car prior to the accident. Kelley Blue Book car value is not the same. Once the insurance company determines the pre-accident value, the next step is to calculate the repairs needed to get the car back to that condition. If those repairs are more expensive than the value of the car, the insurance company may total the car. 

Totaling the car means the insurer does not believe it is worth repairing it. Insurance companies use the total loss value to determine what to pay the vehicle owner for the accident. The deductible, if applicable, is subtracted from this value. 

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 are total loss cars valued?

An insurance company’s goal is to pay out a fair settlement for a vehicle lost in an accident. To determine this in an actual cash value policy, they need to understand the car’s worth prior to the accident. Many factors play a role in this. That includes things like:

  • Wear and tear
  • Mileage 
  • Make and model
  • Previous accidents 
  • How much it is currently selling for by others 
  • Car’s location

There is no one set method that all car insurance companies follow to determine value. Some may use software to help calculate the value of the car. 

They then determine if they will pay for repairs or use an insurance write-off value. Some companies will make repairs up to a certain percentage of the current cash value of the car. For example, if the car is worth $2,000 prior to the accident, and repairs are $1,000, they are likely to make repairs. Some will make repairs up to 80% of the value, for example. That means that if the repairs cost $1,700, they are likely to total the car instead.

In some states, laws govern the total loss threshold. If the vehicle meets this threshold, the car must be declared a total loss and a salvage title must be sought. There are 22 states that do not use a specific threshold percentage for this. Rather, they use a total loss formula. If the number equals or exceeds the actual cash value of the vehicle prior to the accident, the car is a total loss.

In other cases, insurers set that percentage at different points based on their own methods and policies. Consumers don’t typically have access to those factors. You can ask an insurance company to provide some insight, though.

Again, the Kelley Blue Book totaled car value and the value your insurance company comes up with may not match.

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Understanding Actual Cash Value

The type of car insurance coverage matters, too, such as if you have actual cash value or replacement cost coverage. The actual cash value is the value of the car at the present time. It is the amount another party would pay to purchase the vehicle based on its current condition. Insurance companies look at this value just before the accident to determine how much could be owed to you if the insurer issues an insurance write-off payout amount instead of paying for repairs. 

The insurance write-off payment amount is typically the actual cash value of the vehicle right before the accident minus the deductible owed according to your policy. 

Don’t confuse this with replacement value. If you have replacement cost value, the insurance company pays out the amount it costs to replace the vehicle. In some cases, that may mean you get a new vehicle if the car is a full loss. 

What happens if the insurance company determines your car value is lower than you expect?

A total loss value may not be as much as you think. In some cases, especially if you finance or lease your vehicle, you may owe more on the vehicle than the insurance company will pay you for the loss. In this case, you may owe the difference to your lender. 

One way to avoid this is with GAP insurance. It helps cover the difference between what the car is worth and what you owe. Be sure to consider GAP insurance if you are purchasing a new car. 

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

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It is possible to request a re-evaluation of the car’s value if you do not agree with it. Be sure the insurer knows everything about the vehicle, such as any extra features that could improve its value. Perhaps you’ve taken impeccable care of it and have photos showing that. Provide this to the agent to help justify your request for more money. 

What You Can Do to Determine Value

Often, it is up to the insurance company to determine a fair settlement after a car accident. You can use tools like Kelley Blue Book or NADA to help you determine the expected value of the car. These tools may provide some insight into what you can expect while you wait to hear from your insurer.

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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