How Do Insurance Companies Determine the Value of Vehicles?

One of the most frequent types of questions that auto insurance companies receive is in regards to their methods for determining a vehicle’s value. Why do so many people want to know more about this process? Because it can have a major effect on how much you would get reimbursed if your vehicle was ever damaged or stolen. If your insurance provider determines that repairing the damage on your vehicle would cost nearly as much as it’s actually worth, they’ll almost certainly consider it a total loss. The vehicle is sold for parts and your insurer pays you what they believe it was worth. Almost every insurance provider has a different process for determining vehicle value and some use a complex combination of them. Here’s a look at some of the most common methods insurers employ in deciding how much your vehicle’s value:

Common Factors for Determining Vehicle Value

• Probably the most common method that insurance companies use for determining a vehicle’s value is simply using an appraiser. Professional auto appraisers are skilled in assessing vehicle damage and worth. After you file a claim, they’ll come to view your vehicle and determine its value. You may have to have your vehicle appraised before taking out an auto insurance policy in certain situations. Some insurance providers have their own appraisers, while others hire them from an outside company. If you don’t agree with the value the appraiser has set for your vehicle, you may be able to hire an outside appraiser for a second opinion.
• Some car insurance companies have their own unique methods for deciding vehicle value. Often times, they’ll run down a list of important parts on a vehicle and give a rating to each one. This list usually includes parts like the tires, windshield, engine, seats, dashboard, transmission, and more. They’ll add up all of the ratings for each individual part and create an average rating for your vehicle. The higher your vehicle’s average rating, the higher its value will be set at.
• Another method auto insurance providers have in coming up with a vehicle’s value involves extensive market research. Typically, the insurer will look at recent statistics in your area, such as how much similar vehicles are being sold for and if there are any known problems with your specific vehicle. With this information, they can come up with an accurate estimate of the vehicle’s value in your specific area. By using their own market research, insurance providers can also determine what risks your car may be at risk for and can adjust their rates accordingly.
• You may have heard of auto insurance companies determining vehicle value through Kelley Blue Book or some other vehicle valuation service. These valuation companies report market prices for used and new vehicles. Kelley Blue Book is the most popular valuation service, although plenty of others exist as well. This is probably the easiest method, as it requires the least amount of money and effort from the insurer.