What is the market value of my car for insurance purposes?

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Here's what you need to know...
  • When you file an auto insurance claim on damage to your car, the insurance company will estimate the cost of repairs
  • After the cost of repairs is calculated, the insurer will compare this cost to the market value of your car. In the insurance world, this value is called Actual Cash Value
  • The value of your vehicle in the eyes of the insurer is different than the value that’s used if you’re selling your car on the private market or trading it in
  • Insurers use Actual Cash Value valuations instead of Replacement Cost valuations — so that insurers only have to pay the car’s depreciated value at the time of loss
  • The mileage on the car, cosmetic blemishes, the mechanical conditions, the trim level, value of similar cars on the market, and vehicle maintenance can be all factor into a car’s ACV

When you buy car insurance, you’d like to think that your auto insurance company will be there to pick up the pieces.

The purpose of insurance is to have help you after a car accident or moving incident. Unfortunately, some consumers learn the hard way that insurance doesn’t always make you whole again, even if you have a full coverage plan.

Almost all standard car insurance policies will only pay a limited amount of money to repair or replace your vehicle when you have suffered a loss. Since it doesn’t say exactly how much the insurer will pay under your comprehensive or collision coverage, many policyholders aren’t aware of the limit until they file a claim.

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What does the auto insurance contract say?

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Your insurance contract is what explains your legal rights and responsibilities under the contract. It also thoroughly lays out what the insurance company will and will not pay for when you file an insurance claim. While it’s difficult to understand, it is a document that you should have and review when you buy a policy.

Under a standard Personal Auto Policy contract, where it describes the limit of liability for coverage to your auto, it says that the company will pay up to the car’s Actual Cash Value when settling a physical damage claim.

The policy also defines Actual Cash Value since it’s a very broad term that the average person doesn’t know.

What is the difference between Actual Cash Value and Replacement Cost Value?

When you’re buying any property insurance, there will be policies that use Actual Cash Value (ACV) and others that use Replacement Cost Value (RCV).

ACV is most common when you’re buying any personal auto insurance on an everyday commuter car. Some policies do offer special RCV provisions, but they are most common for classic cars.

The biggest difference between ACV and RCV is depreciation. When you’re settling a claim using the ACV method, the company will subtract depreciation from the settlement.

When you’re settling a claim with the RCV method, the company doesn’t subtract depreciation from the settlement. You will receive what it costs to replace the car at the current time.

How is Actual Cash Value determined?

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Companies can’t tell you how much they will pay for a totaled car until you have a loss. Since you have to suffer a financial loss to find out if it’s worth it to carry full coverage, it can be a bit frustrating. It is important to do your research on your own to assess if full coverage is worth it.

Most companies use the same resources to determine what a car is worth and how fast it depreciates. If you have a rare model or trim level, the company might run more comparable reports than they would if you have a popular model.

Here are some of the ways that you can determine the value of your car for insurance purposes:

  • Use a private party car sales website to search for listings of the same vehicle type in your area
  • Compare the dealership list prices of at least five cars with similar features in your area
  • Look up the fair market value of the car using valuation guides like Kelley Blue Book
  • Access the National Automobile Dealer Association guide to find out how much a specific model depreciates and what its salvage value would be
  • If you have a rare vehicle, search vehicles with similar features or look for similar models in a larger geographic area

Can you get a higher value than what you’re offered?

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Insurance adjusters work for the insurance company. It’s their job to investigate a claim and to settle that claim as quickly as possible.

When you’re reviewing your settlement offer, it’s possible to get more for your car if you negotiate. Negotiating ACV is almost a must if you want to get a fair price. Here are some tips:

  • Check the features of the car and tell the agent to add features that bump up the value
  • Give receipts showing that add-ons have been made
  • Show proof your car was in good to excellent condition
  • Ask the agent to narrow the comparable list to only the three highest sales prices
  • Fix the trim level if there is an error
  • Ask the agent for a higher value. Many agents have wiggle room and can raise the value by five to ten percent automatically as a goodwill gesture

Can you buy an auto policy that uses RCV methods?

If you’re buying today’s standard auto insurance policy, depreciation will always be deducted from your claim. Some companies have created special new car replacement endorsements that are similar to Replacement Cost methods. With this endorsement, you can replace your new car with the same model but a year newer. Only some cars qualify.

It’s not always in your best interest to buy full coverage. If you have a car that’s paid off, you should assess the value and then compare that to the cost for full coverage. It’s best if the premiums are less than 10 percent of the value.

After doing this, shop around for coverage elsewhere. Compare premiums using an online rate comparison tool and you can make the best decision for you and your family. Enter your zip code to get started!

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