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Written by Laura Berry
Former Insurance Agent Laura Berry

Joshua is a copywriter at Obrella who for more than 10 years has been creating content about insurance, health care, and more. He helps companies explain complex insurance subjects in simple ways so that customers can make smart buying decisions. He spends way too much time binge-watching Netflix, loves the outdoors and has a cat who tolerates him.

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Reviewed by Joshua Adamson
Joshua Adamson

UPDATED: Jul 16, 2021

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How Do Car Insurance Companies Determine Car Value?

If you're in a major accident, the value of your car comes into play when deciding whether or not your car is totaled. Knowing your car's cash value versus the replacement cost is also important when choosing which type of auto insurance coverage you want.

What is the difference between cash value and replacement cost?

Replacement cost is the amount you pay for your car at today’s cost. The cash value is the amount you pay for a similar car at today’s cost, or the replacement cost, minus depreciation. The cash value of your car is often far below its replacement cost, depending on the number of years your car has depreciated. If you total your car, it costs more to replace it than the actual cash value of your car at the time of the accident.

Choosing the replacement value option when you purchase car insurance addresses this problem. With a totaled car, you may be eligible for a cash settlement that will give you enough money for a new car as well as sales tax, title, and transfer fees. However, replacement value insurance costs significantly more than actual cash value coverage. The higher premium may be worth it when considering how much it would cost to replace your car.

If you have liability insurance only, your auto policy will not cover damages to your vehicle after an accident. It is highly recommended that you add collision insurance and comprehensive coverage to your policy so that your vehicle is covered for any possible scenario. With collision coverage, your vehicle is covered even if you’re the at-fault driver in an auto accident. Comprehensive insurance pays for damage caused by weather, natural disasters, falling debris. If you’re still paying off your car, you may want to consider adding GAP coverage to your policy. This type of auto coverage pays the difference between what is owed on your car and the cash value of the vehicle after it is totaled.

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How do you determine actual cash value?

To figure out your car’s actual cash value, factor in whether the car is new or used as well as the year, make, and model. Include the mileage, additional features, and condition of your car for the best approximation. By using your zip code, you may also find values and other information that are specific to your location. With this information and its own formula, the insurance company calculates your car’s actual cash value.

How do you find the Blue Book value?

To find new and used cars’ depreciated value, insurance companies may refer to the Blue Book value. There are two Blue Books, one from the National Association of Automobile Dealers (NADA) and the other by Kelley Blue Book. On the Blue Book’s website, answer the questions needed to determine actual cash value to find the prices for new and used cars, including your car’s value. The Kelley Blue Book will tell you your vehicle’s trade-in value.

Knowing your car’s cash value versus the replacement cost is also important when choosing which type of insurance coverage you want.

Is my car totaled?

Auto insurance companies use different factors to determine your car’s value before deciding whether your car is totaled. These vary between companies and states. The insurance company calculates the total loss ratio, or damage ratio, of the vehicle, which is whether the cost of repairs exceeds the actual cash value of the car.

Cars are usually totaled when repairs cost more, but this is not always the case. Sometimes the repairs cost less than the car’s value, but the insurance company still considers it totaled. This means the car exceeded the Total Loss Threshold, which the state often dictates.

If you’re unsure about whether to go with coverage for the actual cash value or replacement cost of your car, let us help you weigh your options and make the best decision for you. This way, you no longer have to wonder how much your car is worth.

When you’re shopping for auto insurance coverage, make sure to get an insurance quote from multiple companies. Comparison shopping is the best way to find cheap car insurance with the coverage you need. Our insurance comparison tool will get you started.

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