When a vehicle is involved in an accident and is totaled, insurance companies will determine an Actual Cash Value (ACV) for a vehicle and offer the policyholder that amount as settlement for the insurance claim associated with an accident or event that caused damage to the vehicle. Where the insurance carrier gets their figures can sometimes be a mystery because the amount may appear to be an arbitrary amount.
The First Step
After you file a claim with your auto insurance company, the company will send an adjuster to inspect your vehicle. While inspecting your vehicle, the adjuster will determine whether or not the vehicle warrants repair or simply needs to be totaled. In most cases, insurance companies have a threshold of damage percentage that must be reached before a car can be totaled. Depending upon the insurance company, the maximum threshold for which cars should be repaired is around 60% to 70%. If the adjuster feels that the vehicle is 60% or 70% damaged, they will generally go ahead and total vehicle.
Also, the insurance adjuster will rate the vehicle according to a specified condition rating. Any damages incurred during an accident are not considered when rating the vehicle. For instance, the adjuster will rate areas such as the vehicle trim, windshield, tires, engine, transmission condition and even interior carpets and seats. The adjuster will usually rate the vehicle from excellent all the way down to poor. In most cases, adjuster only rate band new vehicles as excellent.
Third Party Services
Once the adjuster informs the insurance company that the vehicle should be totaled and tells them the vehicle condition rating, the insurance company will then make arrangements to have the vehicle appraised by a third party. This is done to prevent conflicts of interest and also to satisfy any insurance laws in many states that state that the insurance company may not appraise the vehicle themselves.
Many companies use third-party appraisal programs to determine the value of a vehicle. The third-party program will usually be based on the value of the vehicle on the condition rating and any options or accessories in the vehicle. The program will then compare the vehicle to similar vehicles that have been sold in the policyholder’s local area. The average of these vehicles will determine the overall value that will be used as the ACV by the car insurance company.
Some car insurance companies may also ask local area car dealers about selling prices for similar vehicles. In some circumstances, car insurance companies may even find values at websites like Kellye Blue Book or the Edmunds Pricing Guide; however, the insurance company is not required to base the ACV on figures from these types of pricing guides.
How to Increase the Value
Before you accept a settlement from a car insurance company, you should also do some comparison car shopping. Visit at least three of four local-area used-car dealerships and request written estimates for vehicles that are very similar to yours. Also, make sure that you keep any maintenance and repair receipts for your vehicle so that you can show the insurance company that the vehicle was properly maintained and was in good condition.