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When you buy auto insurance, it’s crucial to research the coverage options that are available to you. After you familiarize yourself with each of the options that standard insurers in your state offer, it’s easier to build a policy that will protect you, your assets, and your property.
While it is important to build an insurance portfolio with coverage options that you need, it’s also important to understand how your insurer will pay when the time comes to file a claim — especially when you’re filing a claim for repair.
Here’s what you need to know about claims valuations and how vehicle value is determined.
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Personal Auto Policies are Legal Contracts
Auto insurance policies are contracts between the carrier and the policyholder. When you make payments, you are agreeing to the terms that the insurer sets. You can find these terms by reviewing your Personal Auto Policy booklet which is sent to you with your policy documents.
Know What Your Policy Says About Vehicle Valuations
One section in the Personal Auto Policy details how your car is valued when you carry physical damage coverage and you need to file a claim for covered damages.
In addition to coverage definitions, Part D of the policy will also define which vehicles qualify for coverage, causes of damage that are excluded, and how much the insurer will pay to repair or replace your car.
In a majority of standard auto policy contracts, the contract states that the company will only pay up to the vehicle’s Actual Cash Value after a loss. Some agents will use the term fair market value when describing limits.
Actual Cash Value (ACV on policy documents) might sound like a redundant term. In the insurance industry, ACV means that the company will pay for the replacement cost of the vehicle at the time of the loss minus depreciation.
Do all insurance companies factor in depreciation when settling damage claims?
While standard policies and high-risk policies do typically use Actual Cash Value valuations methods to limit the amount the carrier must payout, there are special endorsements that are available to policyholders to provide you with more protection. These endorsements are often called New Car Replacement coverage.
When you elect to carry New Car Replacement on your policy, the company will use Replacement Cost Valuation methods.
Instead of depreciating the value of your car, the company will issue you a check to replace your car. To qualify for this special endorsement, you must have a newer model vehicle with low mileage.
When you file an at-fault or not-at-fault claim, it is the claims adjuster’s job to gather the facts, verify coverage under the policy, determine fault, and assess the value of your car.
If you’re found to be negligent for the accident, your insurance company will determine value. If you’re not-at-fault, the other carrier will make an offer to settle the claim based on what they think the car is worth.
How does a company settle on an Actual Cash Value?
There’s not just a single guide book that adjusters can turn to when they are trying to find out what a car is worth. Since many factors affect a car’s rate of depreciation, and some cars depreciate faster than others, the professionals will use a combination of different listings, guides, and sales records to make the company’s initial settlement offer.
If you’re interested in doing your own research to determine how much your car is worth in the eyes of your adjuster, you can use the Internet to access some popular valuation resources.
This knoweldge will also give you negotiating power if you’re not happy with your offer. Some of the different resources that you can use to look up ACV include:
- Kelley Blue Book’s fair market values
- National Automotive Dealer Association new car and used car value guides
- Dealer and private party sales listing prices for the same model
- Sales records for dealer and private transactions completed in your area
When is a car declared a total loss?
When a car is declared a total loss, the company will take over possession of the vehicle and a salvage title will be issued. This happens when the total cost to repair the vehicle is higher than the car’s Actual Cash Value. Some cars can be totaled sooner if the state has a Total Loss Threshold and that threshold is exceeded.
You have the option to keep your car if it is totaled. Be sure to consider the type of damage the car sustained before you decide if it is worth it to buy the car back. Sometimes, it makes better sense to take the settlement and start over.
If you’re not happy with the way that your adjuster settled your claim, you have the option to shop around at any time during your term.
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