How do insurance companies determine car value? (2024)

After a car accident, vehicle owners file a claim for the damage. The insurance company typically needs to determine what the car’s value was just before the accident occurred. 

Insurance companies use a proprietary formula to calculate the value of the car prior to the accident. Kelley Blue Book car value is not the same. Once the insurance company determines the pre-accident value, the next step is to calculate the repairs needed to get the car back to that condition. If those repairs are more expensive than the value of the car, the insurance company may total the car. 

Totaling the car means the insurer does not believe it is worth repairing it. Insurance companies use the total loss value to determine what to pay the vehicle owner for the accident. The deductible, if applicable, is subtracted from this value. 

Auto insurance companies may determine car value, but you shop around if you’re not happy with how your claim has been handled by using our FREE online tool above.

How are total loss cars valued?

An insurance company’s goal is to pay out a fair settlement for a vehicle lost in an accident. To determine this in an actual cash value policy, they need to understand the car’s worth prior to the accident. Many factors play a role in this. That includes things like:

• Wear and tear
• Mileage 
• Make and model
• Previous accidents 
• How much it is currently selling for by others 
• Car’s location

There is no one set method that all car insurance companies follow to determine value. Some may use software to help calculate the value of the car. 

They then determine if they will pay for repairs or use an insurance write-off value. Some companies will make repairs up to a certain percentage of the current cash value of the car. For example, if the car is worth $2,000 prior to the accident, and repairs are $1,000, they are likely to make repairs. Some will make repairs up to 80% of the value, for example. That means that if the repairs cost $1,700, they are likely to total the car instead.

In some states, laws govern the total loss threshold. If the vehicle meets this threshold, the car must be declared a total loss and a salvage title must be sought. There are 22 states that do not use a specific threshold percentage for this. Rather, they use a total loss formula. If the number equals or exceeds the actual cash value of the vehicle prior to the accident, the car is a total loss.

In other cases, insurers set that percentage at different points based on their own methods and policies. Consumers don’t typically have access to those factors. You can ask an insurance company to provide some insight, though.

Again, the Kelley Blue Book totaled car value and the value your insurance company comes up with may not match.

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How is actual cash value determined by insurance companies?

The type of car insurance coverage matters, too, such as if you have the car’s actual cash value or replacement cost coverage. The actual cash value is the value of the car at the present time. It is the amount another party would pay to purchase the vehicle based on its current condition. Insurance companies look at this value just before the accident to determine how much could be owed to you if the insurer issues an insurance write-off payout amount instead of paying for repairs. 

The insurance write-off payment amount is typically the actual cash value of the vehicle right before the accident minus the deductible owed according to your policy. 

Don’t confuse this with replacement value. If you have replacement cost value, the insurance company pays out the amount it costs to replace the vehicle. In some cases, that may mean you get a new vehicle if the car is a full loss. 

What happens if the insurance company determines your car value is lower than you expect?

A total loss value may not be as much as you think. In some cases, especially if you finance or lease your vehicle, you may owe more on the vehicle than the insurance company will pay you for the loss. In this case, you may owe the difference to your lender. 

One way to avoid this is with GAP insurance. It helps cover the difference between what the car is worth and what you owe. Be sure to consider GAP insurance if you are purchasing a new car. 

Here are a few auto insurance rates based on driving records and how they are affected by GAP insurance.

Gap Insurance Comparison by Driving Record: Average Monthly Auto Insurance Rates

It is possible to request a re-evaluation of the car’s value if you do not agree with it. Be sure the insurer knows everything about the vehicle, such as any extra features that could improve its value. Perhaps you’ve taken impeccable care of it and have photos showing that. Provide this to the agent to help justify your request for more money. 

What You Can Do to Determine Value

Often, it is up to the insurance company to determine a fair settlement after a car accident. You can use tools like Kelley Blue Book or NADA to help you determine the expected value of the car. These tools may provide some insight into what you can expect while you wait to hear from your insurer.

You might want to look for a new policy somewhere else if you aren’t happy with how your insurance company determined your car’s value, so we’ve provided a FREE comparison tool to help you find affordable auto insurance.

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Car Valuation Methods: KBB vs. NADA vs. CCC

When determining the pre-accident value of your car, insurance companies might reference established valuation guides or employ proprietary formulas. Common questions include, “Do insurance companies use NADA or KBB?” and “How does insurance determine car value?” The answer varies by insurer, but many use a combination of resources like Kelley Blue Book (KBB), National Automobile Dealers Association (NADA), or Certified Collateral Corporation (CCC) data. These sources provide benchmarks for retail, trade-in, and private party values, which can differ significantly.

• Kelley Blue Book (KBB): Most commonly, insurers look at the KBB insurance value based on the car’s make, model, year, mileage, features, and condition. It offers different values such as retail, private party, and trade-in, which are derived from actual transactions and price adjustments in the automotive market. Insurers often use KBB as a benchmark for setting premiums and determining payouts.

• National Automobile Dealers Association (NADA): The NADA car value is favored for commercial vehicle valuations and is often used by insurers to determine the dealer retail value. Like KBB, it factors in the car’s condition, mileage, location, and historical data but is typically skewed toward dealership sales. 

• CCC Information Services: Some insurers prefer CCC car value vs blue book when detailed accident claim analysis is required, particularly when assessing a car’s value for total loss situations.

Each method has its strengths, and the choice of which to use may depend on the policy of the insurance company and the specific circumstances of the claim. Furthermore, the question of “do insurance companies use trade-in value or private party value” typically depends on the policy of the specific insurer.

Real Value vs. Book Value: What Insurance Companies Consider

The “real value” or market value of a car refers to what the vehicle could sell for in its current condition in the open market. “Book value,” on the other hand, is a standardized estimate found in pricing guides like KBB or NADA. Insurance companies consider both, but how they weigh each can depend on the type of coverage policy held by the insured and the specific circumstances of the loss:

• Actual Cash Value (ACV): Most insurance policies are based on ACV, which is the replacement cost minus depreciation. Insurers use a combination of book values and real-time market analysis to determine this figure.

• Replacement Cost: In some premium policies, the insurer might offer replacement cost coverage that pays for the cost of replacing the vehicle without depreciation. This is more common in policies for new vehicles.

In claims processing, insurers tend to default to the book value as a baseline but will adjust this figure based on their assessment of the car’s real market value at the time of the accident.

Calculating Total Loss and Actual Cash Value

Insurance companies use different models to decide if a car is a total loss, often relying on the total car value calculator which compares repair costs against the car’s value. How insurance companies determine the value of a car involves assessing whether repair costs will exceed a percentage of the car’s actual cash value. This threshold varies but is typically around 70% to 75%.

• Total Loss Threshold: This is the ratio of the repair cost to the vehicle’s value. If the repair costs exceed a certain percentage of the car’s value (often ranging from 70% to 100% depending on state laws and insurer policies), the car is declared a total loss.

• Total Loss Formula (TLF): Some insurers and states use a formula that compares the sum of the repair cost plus the salvage value of the car to the ACV. If this sum exceeds the ACV, the car is considered a total loss.

• Actual Cash Value: When exploring the questions “How does insurance determine the value of totaled car” or “How does Allstate determine car value,” it’s important to note that insurers generally calculate the actual cash value (ACV) by subtracting depreciation from the replacement cost. This ACV is what you are paid if your car is totaled.

Insurers provide compensation based on the ACV of the car at the time of the accident, minus any deductible that applies under the policy.

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Settlement and Payout: What to Expect

After determining the ACV, insurers answer the critical question, “What does insurance use to value a car?” They may factor in the Kelley Blue Book insurance value. If your car is deemed a total loss, the payout you receive will be this ACV minus any deductible you owe.

Does Insurance Pay Blue Book Value?

It’s a common misconception that insurance payouts strictly adhere to blue book values. “Does insurance pay blue book value?” Not necessarily. Insurers consider several data points, and while “Kelley Blue Book car value after accident” provides a baseline, the final valuation can differ based on internal assessment tools and market analysis.

Appealing Insurance Valuations

If you disagree with the valuation—perhaps asking the questions, “How do insurance companies value a car?” or “What value do car insurance companies use?”—you can appeal to the insurance company. Insurance companies are required to provide a rationale for their valuations, and you can contest their findings by providing evidence of higher values from the Kelley Blue Book actual cash value or other reputable sources.

Online Calculators and Their Accuracy

Online tools such as the “Kelley Blue Book Totaled Car Value Calculator” offer a convenient way for consumers to get a ballpark figure of their car’s worth. However, the accuracy of these tools can vary due to differences in the data they use and the specific algorithms applied. It’s important to note that while these tools provide a good starting point, the question of what value insurance companies use might differ due to additional adjustments for local market conditions, the car’s condition, and proprietary insurer data.

Case Studies: How Major Insurance Companies Value Cars

• Allstate: Allstate uses a proprietary model that considers both KBB and NADA values, alongside real-time market analysis. They adjust the car’s value based on its condition pre-accident, mileage, and regional sales data.

• Geico: Geico typically uses CCC data to assess car values for claims. This method integrates repair costs with detailed market trends to provide a value that reflects what the car would have sold for in its pre-accident condition in a local market.

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Ensuring Fair Valuation

Understanding “how do insurance companies value your car” or “how do insurance companies value cars” empowers you to navigate claims more effectively. If you’re not satisfied with how your car’s value has been assessed, especially post-accident, using tools like “nada car value” or “insurance car value” calculators can provide leverage for negotiating more favorable settlement terms.

Ready to Find the Right Coverage for Your Vehicle?

Understanding how your car’s value is assessed can significantly impact the insurance process and your financial planning. Don’t leave it to chance. Compare quotes from top-rated insurers using our secure, easy-to-use comparison tool. Enter your ZIP code below and ensure you’re getting the best possible coverage and value for your car. Start saving today and drive with confidence knowing you’re well-protected.

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