How Auto Insurance Providers Value Cars

If you’re in the market to purchase auto insurance, you probably have questions about how your provider will value your car. Luckily, our insurance agents will answer those questions here and go over ways to ensure that the value they place on your car is as accurate as possible.

Whether you’re looking to switch providers or want to ensure that your insurance provider isn’t giving you lowball estimates that could lead to big expenses down the road, this guide will help you get the answers you need.

Do Insurance Companies Value Cars Differently?

There are two general ways that insurance companies value cars. The first is the Kelley Blue Book approach, which uses a car’s retail value. The other is the National Automobile Dealers Association (NADA) appraisal guide, which uses a car’s trade-in value. This guide focuses on the NADA method of valuing cars because it gives consumers a good sense of how their car will be valued when they trade it in for something new or need to file an insurance claim after an accident.

The cost of insuring your car can also affect its valuation by auto insurance providers. For example, if you have a newer model and an expensive car, you may have to pay more than someone with an older vehicle.

Similarly, if you take out comprehensive coverage in addition to collision coverage for your car, you may experience higher rates than someone with only collision coverage due to the high cost of repair and replacement parts. If this is not desirable for you and you want to keep your costs down, consider taking out less comprehensive coverage.

You should always contact several auto insurance providers before purchasing any policy. Different companies have different values for the same vehicles based on many factors such as make and model, mileage; age, overall condition; use; zip code; credit score, etc.

Illustration of different types of car accidents

Understanding Car Insurance Claims Valuations

An important thing to know about auto insurance claims valuations is how much a car is worth can change with depreciation. This means that the value of your car when you buy it may be different from the value of your car after a year. This can cause huge problems when filing an auto insurance claim and understanding what your insurer has to cover.

For example, if you bought a used Mercedes-Benz E-Class for $60,000 and after one year, it was worth $50,000 because of depreciation. If your insurer covers 100% of the cost to replace or repair a damaged car, you would only receive $50,000 because the replacement cost for this vehicle is only $50,000, even though the purchase price was $60,000.

Actual Cash Value Vs. Replacement Cost

When getting a quote for your auto insurance, it is important to understand the difference between Actual Cash Value and Replacement Cost. Replacement Cost is the cost of replacing your car with another identical model. Actual Cash Value is what your car would be worth today minus depreciation. For example, if you bought your car in 2000, its value depreciated by over 20%.

This means that if you totaled your car today and were looking at an actual cash value settlement with an insurance company, they might give you $2,000 less than the replacement cost settlement because they will only compensate up to the original purchase price of $10,000 instead of the current replacement price of $12,000.

You can reduce this gap by purchasing a collision or comprehensive coverage. You should ask your insurance agent how much those coverages would cost before deciding on one type of coverage or another.

The Depreciation Problem

When you buy a new car, it costs significantly less than what it would be worth after several years of use. In some cases, the vehicle depreciates to the point where you owe more on your auto loan than the actual value of your car. This depreciation problem is an issue for many car owners who rely on their vehicles for transportation.

One option for overcoming this issue is to opt for financing that cuts the auto loan length from four or five years down to three or two. The lower monthly payment may make paying off a longer-term loan easier and allow you to save money because there will not be as much interest accrued over time.

Another option is switching from an open-ended warranty to a service contract that includes a mileage allowance and provides maintenance services. There are also purchase plans that let you pay as little as $20 per month until your car is paid off completely.

Insurance advisor explaining auto insurance policy to a client

When Valuation Falls Short

When the value falls short, many people face a difficult decision. They either need to purchase additional coverage, which can be costly and not include all of the benefits that other types of car insurance may offer, or they have to take out a loan to pay for this type of coverage. Thankfully, there is another option many people don’t know about: GAP insurance.

The Gap Insurance Solution

GAP insurance covers the difference between what your car is worth and what you owe if your car is totaled or stolen. It usually only covers cars under five years old, but it doesn’t matter if you bought your car new or used; it also helps protect against natural disasters like floods.

One downside is that some insurance providers require drivers to have continuous coverage or to buy at least one year’s worth of coverage before they’re eligible for GAP insurance, so it might not be an option if you just recently purchased a vehicle.

Another thing you need to remember is to make sure you know how much you will owe on your current car before purchasing GAP insurance because if the cost exceeds the amount owed on your current vehicle, then it won’t cover anything.

How Can You Get The Best Value For Your Auto Insurance?

To get the best value for your car, it’s important to know how auto insurance providers value cars. One company might think your car is worth $5,000, while another might say it’s worth $6,000. The only way to find out what your car is truly worth is by consulting with multiple insurance companies and seeing what they offer you in terms of a settlement. If you’re looking for a quick quote on your current car, check out our easy steps below!

  1. Go to our website and enter the make, model, year, and state where you purchased the vehicle.
  2. Enter the driver’s license number
  3. Fill out all information about yourself, such as your name, contact number, the town you live in, and email address.
Two people shaking hands while buying auto insurance

So, what are you waiting for? Reach out to our qualified insurance agents at Western Mass Auto Insurance. We offer all kinds of Insurance plans, including home, auto, apartment, and commercial vehicle insurance.

If you’re looking for additional insurance information, you can look at our blog here. You can also download our app now!

Request a free quote from us today!