When you file for an insurance claim after being involved in a car accident, your insurance company will determine your car value before the accident. The main reason for doing this is so that the insurance company can determine whether your car can be repaired or is a total loss.
So how exactly do insurance companies determine the value of your car? Here is everything you need to know about how insurance companies determine the actual cash value of your car.
What Is Actual Cash Value?
The actual cash value (ACV) of your car is the amount that your insurance company will pay after your car is totaled in an accident or stolen. Generally, your car’s ACV is its value right before the accident occurred as determined by your insurance provider minus all the deductibles you owe for your comprehensive or collision coverage.
However, it’s very important to understand that the insurance company will take into account the usage of your car, past accidents, and the inevitable wear and tear to your vehicle before paying you that amount. This is why the ACV insurance companies come up with is usually hundreds or even thousands of dollars less than the actual amount you paid for the car. This applies even to the most careful owners who have taken great care of their vehicles.
You need to understand that cars depreciate in value the minute you drive them off the lot, and this is why the depreciation has to be accounted for when calculating ACV. Even if your car is just weeks old and has barely any mileage on it before the accident, the ACV computed will still be less than what you paid for it when it was brand new. This is actually the main reason most car owners choose to invest in additional coverage for their car in case it gets involved in an accident.
How Is ACV calculated?
Most auto insurance companies out there use unique industry formulas to calculate your car’s ACV, which means that it is very hard to precisely predict the amount they’ll come up with in the event your car is totaled.
This process isn’t exactly as simple as looking up your car’s estimated value on websites like Kelley Blue Book or even National Automobile Dealers Association (NADA). As mentioned above, your insurance provider will take into account various factors before coming up with ACV. Your auto insurance company can go as far as looking at comparable cars for sale in your area with the same make, specifics, and model as yours in order to get a sense of how much your vehicle would be worth before getting stolen or totaled in an accident.
Your insurance company is also likely to share those figures with you before paying your insurance claim. A good surprise during this process is when the auto insurance company pays an amount that is exactly around what you estimated your car was worth or even more than that. However, if the auto insurance company comes up with an ACV which is way below what you believe your car is worth, there is always room to dispute such a valuation.
How Do You Dispute Your Auto Insurance Company’s Valuation?
If the ACV that your auto insurance company comes up with isn’t satisfactory to you, you can always dispute it. To dispute this successfully, however, you need to show substantial proof that your car would have been worth much more in a fair market value than what they’re offering you.
The best place to start is to search for similar cars sold in your area. These cars have to be of the same make and model as yours, and they should also have the same mileage, specifications, wear and tear, and accident history. Also, to add some credibility to your dispute, you need to find cars sold at dealerships and not on online platforms such as Facebook. At this stage, you can also look up your car value on websites such as Kelley Blue Book and National Automobile Dealers Association, which are both independent car valuation companies.
You also need to compile some aspects that clearly show that your car is worth more than what the auto insurance company is offering. However, when you own a car, it’s best to take it to a reliable dealership and have it professionally appraised. Remember that knowing your car’s value is always a good thing because, if it is totaled, you’ll have a record ready that will show how much it was recently worth.
Other Factors That Determine ACV
New cars usually have higher ACVs compared to old ones. However, it’s in your best interest that you get full coverage for your car in order to shield yourself from unexpected fees that could hurt your finances. New car replacement coverage and gap insurance coverage are both important coverage that can help you if your car is totaled in an accident.
However, it’s important to note that the cost of adding each of them to your policy varies. Gap insurance is usually less expensive while new car replacement coverage is more expensive, and it could cost you about $120 more than what you already pay for your insurance every year.
Gap Insurance Coverage
If your car is totaled when the lease still isn’t up or when you’re still making loan payments for it, you’re still required to continue making these payments even though you don’t have the car anymore. This is where the gap insurance coverage applies.
It will pay off the difference between the amount you owe in payments for the car and the ACV. In most cases, you’re required to get gap insurance coverage if you have a car loan or you’ve leased a car. Even though gap insurance doesn’t exactly get you a new car, it offers you an add-on that that can help you get one.
New Replacement Coverage
If your car is new, it’s in your best interest to get new replacement coverage. This insurance coverage is only available for a car in which you’re the first owner and it’s one or two years old. It’s important to note that some of these specifics vary from one insurance provider to another.
New replacement insurance coverage ensures that, if your car is totaled, you’ll get compensation that is much more than the ACV of the car. Generally, you’ll be paid enough money to replace the totaled car with a new and identical make or model.
The ACV of your car is a very important aspect you need to know so that you can get an insurance policy that meets your needs. If you’d like to avoid a low payout, it’s in your best interest to invest in gap insurance coverage and new replacement coverage.
