When your vehicle is in a car accident, your insurance company pays you for the value of the car or, more precisely, pays you for what it claims to be. You can use this money for the amount you still have to pay for the total car, or you can use it to buy a new vehicle. Almost everyone who has gone through this process can confirm that the most frustrating part is that the car insurance company appreciates the evaluation of the car. The estimate is almost always much lower than what you expected, and the amount you receive is not enough to buy a variety from apple to apple. For many drivers, it is not even enough to cover what they still owe to the car.
The fact that most car insurance customers have no idea of the methodology used by insurance companies to value automobiles is a given. The valuation methods of car insurers are esoteric and are based on abstract data, the details of which they do not wish to disclose. This information asymmetry makes it difficult for a consumer to challenge a low offer from an auto insurance company. Simply by knowing the basics of how insurance companies rate cars and the terminology they use, you can find a more favorable place to negotiate.
The process of valuation of
the auto insurance.
When you report a car accident to your insurance company, the company will send an expert to assess the damage. The first order of the expert determines the classification of the vehicle as summed. An insurance company may consider totalizing the car even if it can be remedied. In general, the company ends up with a car if the repair cost exceeds a certain percentage, usually 60 to 70%, of its value.
Assuming that the vehicle has been added, the expert performs an evaluation and assigns a value to the vehicle. The damage caused by the accident is not included in the evaluation. What the expert wants to estimate is what would have been a reasonable cash offer for the vehicle just before the accident occurred.
The insurance company then asks an external appraiser to provide a personal estimate of the vehicle. This is done to minimize any appearance of impropriety or supervision and to subject the vehicle to a different valuation methodology. The company considers its own evaluation and that of the third party when making its offer.
Current present value versus replacement costs
There is a great distinction between the value of your car as determined by the insurance company and the amount it really costs to buy an adequate replacement. The insurance company bases its offer on the real cash value (ACV). This is the amount that the company determines that someone would reasonably pay for the car, assuming the accident did not occur. That is why the value takes into account depreciation, wear, mechanical problems, aesthetic imperfections and supply
Even if you bought a new car and drove only one year before the accident, the ACV is considerably lower than what you paid. Just drive a new party car, appreciate 20% and the insurance company will compete with you for everything from the miles on the clock to the soda stains on the upholstery that was built that year.
The amount of the ACV offer will also be less than the replacement value, the amount you must pay to buy a new vehicle that is similar to the one you have discarded. Unless you are willing to supplement the insurance supplement with your own funds, your next car will be a step behind your previous one.
One solution to this problem is to buy an automobile insurance policy that pays replacement costs. This type of policy uses the same methodology to total a vehicle, but then pays you the current market rate for a new car of the same class as your discarded car. Monthly premiums for cost insurance can be considerably higher than for traditional car insurance.
It is not very frustrating not being able to afford a comparable car with your insurance company's money after an accident. That said, there is another potential situation that can further reinforce the stress of a car accident.
Often, the amount offered by an insurance company for a total car is not even enough to cover what is owed to the car scrapped. This can happen if you demolish a new car soon after you buy it. The vehicle has its big initial.