Classic Car Valuation For Insurance – When your vehicle is totaled in an accident, your insurance company pays you for the value of the totaled car, or more accurately, it pays you what it claims the value is.
Almost everyone who has been through this process can attest that the most frustrating part is accepting the auto insurance company’s assessment of your car’s value. Almost invariably, the estimate is lower than you expected, and the amount you receive is not enough to purchase an apples-to-apples replacement. Sometimes, it’s not even enough to cover what they still owe on the car.
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The confusing problem is the fact that most customers are not familiar with the methodology used by insurance companies to value cars. Auto insurers’ valuation methods are esoteric, based on abstract data, the details of which they are careful not to reveal. That makes it difficult for a consumer to challenge a low-ball offer from an auto insurance company.
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Knowing the basics of how insurance companies value cars and the terminology they use can put you in a stronger negotiating position.
When you report a car accident to your insurance company, the company sends an adjuster to assess the damages. The first matter of adjustment is deciding whether to classify the vehicle as totaled.
An insurance company may consider the car totaled even if it can be fixed. Generally, the company decides to total a car if the cost to repair it exceeds a certain percentage of its value, between 51% and 80%, according to Insure.com. Some states mandate or provide guidelines for this percentage: Alabama, for example, sets it at 75%.
Assuming the vehicle is totaled, the adjuster performs an assessment and assigns a value to the vehicle. Accidental damage is not considered in the valuation. What the adjuster aims to estimate is what a reasonable cash offer would have been for the vehicle immediately before the accident occurred.
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The insurance company then hires an outside appraiser to issue their own estimate of the vehicle. This is done to minimize any appearance of impropriety or carelessness and to subject the vehicle to a different valuation methodology. The company takes into account its own assessment and that of the third party when making its offer.
It may be possible to hire your own appraiser if you disagree with your insurance company’s appraisal, although you may need your insurer’s approval to do so.
There is a big distinction between the insurance value of your car as determined by the insurance company and the amount it actually costs to buy a suitable replacement. The insurance company bases its offer on the actual cash value (ACV). This is the amount the company determines someone would reasonably pay for the car, assuming the accident had not occurred.
Actual cash value usually takes into account factors such as depreciation, wear and tear, mechanical issues, cosmetic imperfections, and supply and demand in your area. For example, State Farm makes explicit reference to its car insurance value calculator: “We base your vehicle’s value on your year, make, model, mileage, overall condition, and major options, less applicable deductible and state taxes and fees “.
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Even if you bought a new car and only drove it for a year before the accident, your ACV will be significantly less than what you paid for it. Simply driving a new car off the lot depreciates it by 9% to 11%, and the depreciation accelerates to 20% at the end of the first year.
In fact, the insurance company tells you about everything from the miles on the odometer to the soda stains on the upholstery accumulated during that year.
The amount of the ACV offer will inevitably be less than the replacement cost, which is what it costs you to buy a new vehicle similar to the one that was wrecked. Unless you are willing to supplement the insurance payment with your own funds, your next car is going to be a step down from your old one.
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This type of policy uses the same methodology to total a vehicle, but then pays you the current market rate for a new car in the same class as your wrecked car.
If you total your car soon after you buy it, you could end up with negative equity in the car, depending on your financing agreement. That is, the insurance payment may be less than what you owe on the vehicle.
The situation can get worse if the car is relatively new. The amount offered by the insurance company for the totaled car may not even be enough to cover what is owed on the damaged car.
This can happen if you wreck a new car shortly after buying it. A new car takes its biggest valuation hit when its new owner drives it off the lot. If an accident happens within a year or so, the total car payment is likely to be less than what the owner owes on it.
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If a lender can obtain a court judgment, it can seek means to collect the deficiency balance, including wage or bank garnishment.
This becomes more likely if the buyer took advantage of a special financing offer that minimized or eliminated the down payment. While these programs certainly prevent you from having to part with a large amount of cash to buy a car, they almost guarantee that you’ll walk off the lot with negative equity.
When your insurance check can’t pay off your car loan in full, the amount left over is known as a deficiency balance. Because it’s considered unsecured debt (the collateral that secured it is now destroyed), the lender can be aggressive about collecting it. This may include seeking a civil judgment against you to force you to pay what is owed.
Like the replacement cost problem, this problem has a solution. You can add gap insurance to your policy to ensure you never have to deal with the remaining balance on a totaled car.
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This coverage pays the cash value of your car as determined by the insurance company and pays for any deficiency balance left over after the proceeds are applied to your loan.
Car insurance companies use many factors when valuing a car. These factors may include the make and model of the car, previous accidents, normal wear and tear from use, part replacements, the car’s mileage, and the car’s overall market value.
When paying for the loss of your vehicle, insurance companies usually use the actual cash value, also known as market value, which takes into account the replacement cost of the vehicle minus depreciation. This is what you would get for the vehicle if you sold it on the market today. Replacement cost, on the other hand, is the value of replacing your vehicle with a similar make and model. It does not take into account specific factors, such as wear and tear. The replacement cost is beneficial to the vehicle owner, while the actual cash value is beneficial to the insurance company.
Yes, you can ask for more money when your car is totaled when negotiating with your insurance company. You will need to do your research beforehand and provide a supported reason why you should receive more money. It is recommended that you research the actual cash value of your car, find out your state’s total loss threshold, and any other information that may help your case.
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Dealing with insurance companies can often be difficult, especially when there is a lot of money at stake. Assessing the value of a car can be even more onerous than other areas of insurance, as the assessment is completely up to the insurance company and their methods are rarely disclosed. Doing a little research and familiarizing yourself with the process can help you gain a stronger negotiating position when dealing with your auto insurance company.
Requires writers to use primary sources to support their work. These include white papers, government data, original reports and interviews with industry experts. We also reference original research from other reputable publishers, where appropriate. You can learn more about the standards we follow to produce accurate and unbiased content in our editorial policy. Hagerty UK’s ‘Bull Market List’ follows the same format as that published annually by the company’s US counterpart, identifying a range of classic and modern classic cars. which he believes is poised to increase in value over the next 12 months.
Among the top performers on the recent US charts. USA these include the Toyota MR2 sports car, which entered the inaugural UK list (only), and the BMW M3, which saw an average price rise of 20% in the 2018 edition.
To compile the list, Hagerty analyzed its market valuation data, as well as quotes and insurance policies, to track demand for certain models. The top 10 range in age, luxury, rarity and value – from relatively modern family hatchbacks worth just over £1,