Skip to content

How Do Insurance Companies Determine Car Value?

How Do Insurance Companies Determine Car Value?

A totaled car is one of the worst things that can befall a car owner. Most of us tend to get a little bit attached to our cars, and losing one is like losing a faithful old horse. Many car owners get an additional kick in the rear from their insurance company, as well. While most insurance companies will compensate you for a totaled car, they are unlikely to give you a whole lot. In this article, we will look at how insurance companies determine the value of your car in a situation like this.

The Insurance Company Doesn’t Want To Pay

This principle is true of all insurance companies: They always try to give you as little as possible. If your car is valued between $10,000 and $15,000, for instance, you can bet they will not offer you more than $10,000 in compensation. Naturally, this will also depend on the quality of your policy. You see, insurance companies will promise to reimburse the value of your car…but their appraisers are the ones who determine the value.

That same principle applies to repair costs. The insurance company will have their people do an estimate of the repair costs, and they will probably insist that you use a company-approved repair shop. In this case, you can bet that they will lowball the repair costs any way that they can.

Actual Cash Value (ACV)

When you sign an insurance policy, it is important that you understand the concept of “actual cash value.” Many people make the mistake of taking this term at face value. When the company says they will recoup the actual cash value of your car, you assume that they will compensate you for the original cost of the vehicle.

ACV refers to the amount of money for which the vehicle can be sold. This is an estimate made by the insurance company and is based on the market value of the car before the crash. Thus, used cars or older cars will often be valued quite low.

You can deal with this issue by getting a better insurance policy. Higher-quality plans will sometimes agree to reimburse you for the “replacement cost” of the vehicle. If this terminology is used, it means they will be sure to pay you enough for the replacement of the vehicle.

How Are These Prices Determined?

After an accident, your insurance company will send an adjuster to inspect the damage and make estimates. If the cost of all necessary repairs is greater than the value of the car, it is considered to be “totaled.”

Then, they will find the actual cash value of your car. They will do this by checking various prices for similar vehicles. The price of any vehicle will vary quite a bit, so make sure you read the insurance policy carefully. Some companies will average all the prices they can find, while others will give you the highest (or lowest) price estimate that they can find.

Your Insurance Plan Makes A Big Difference

If you are one of those people who gets the bare minimum in terms of insurance (liability only), then you are probably out of luck. Even if your car is totaled, your policy will not pay for the damages. Liability insurance will only pay for damage to the other driver, and so it won’t help your car situation at all. On the other hand, those with more expensive plans might be compensated with a comparable new vehicle.

What If Your Car Isn’t Paid Off?

If you have financed a car, and you total it, the debt does not go away. You are still liable for the cost of the vehicle, and your insurance company won’t normally cover the cost. This is a very bad situation, and it often occurs when a vehicle is wrecked shortly after its purchase. As soon as the car is driven off the lot, it is considered “used,” and the price goes down accordingly. Thus, the ACV might not even be enough to cover what you owe. If you are financing a car, you might want to consider purchasing gap insurance, which is meant to guard against this specific problem.

Always Try To Negotiate

Most lawyers will suggest that you should always turn down the insurance company’s first offer. In most cases, it will be a lowball offer that is nowhere near enough to put you in a comparable vehicle. In some cases, they might not be willing to budge, but it’s always worth a try.

If this process turns into a negotiation (and it usually does), you should consider hiring the services of an attorney. For large settlements, it is probably worth the cost of legal counsel to ensure that you get what you need and deserve. An experienced lawyer will definitely be able to negotiate more effectively with your insurance company.


When dealing with the insurance company, it pays to be on your toes. While they are certainly not an enemy, you cannot always count on them to represent your interests. That’s why you should always do your homework and learn the rules and regulations thoroughly. It may seem like you are at their mercy, but your insurance company is bound by the same laws that you are. We hope that we have answered your question in a satisfactory manner. If so, please fill out the contact form below so that we can keep you updated with future articles.

Contact us

Skip to content