How Insurance Companies Determine a Vehicle’s Value in 2024 (Process & Rules)

If you’ve had an accident that destroyed your vehicle, you probably want to know how insurance companies determine a vehicle’s value so you don’t lose money. Insurance companies use a proprietary formula to calculate the value of the car before an accident. 

After determining the pre-accident value, the repairs needed to get the car back to pre-accident condition are calculated. If repairs are more expensive than the value of the car, the insurance company may total the car (Learn More: How do insurance companies value totaled cars?).

Totaling the car means it is not worth repairing. The deductible, if applicable, is subtracted from this value. 

Read on to learn more about insurance vehicle values, and what coverage you should have to get the full value of your car. If you’re not happy with your claim handling, shop around for auto insurance by using our free online tool above.

How Companies Determine the Insurance Value of a Car

How does car insurance determine value? An insurance company’s goal is 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. The car insurance value includes things like:

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

There is no one set method that all car insurance companies follow to determine value. Some may use software like a totaled car value calculator 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 car value for insurance claims.

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 value for insurance claims 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 value of a car and the value your insurance company comes up with may not match.

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 to how insurance calculates car value 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 the KBB ACV calculator 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, the car value calculator from NADA factors in the car’s condition, mileage, location, and historical data, but NADA actual cash value data 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 car value insurance 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.

Read More: Replacement Cost vs. Actual Cash Value

Insurance companies consider both, but how they weigh each for the insurance value of cars 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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How Companies Determine the Actual Cash Value of a Car 

The types of auto insurance 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. 

When Your Car Value is Lower Than You Expected

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. While unexpected, it’s not uncommon.

One way to avoid this is with GAP insurance. It helps cover the difference between what the car is worth and what you owe. 

GAP Insurance Monthly Rates by Top 10 Providers

 

Your rates will vary slightly from the rates above if you have a poor driving record. 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: Monthly Auto Insurance Rates

Be sure to consider Guaranteed Auto Protection (Gap) insurance if you are purchasing a new car. 

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 on the insurance book value. 

What You Can Do to Determine the Cash Value for Your Car

Often, it is up to the insurance company to determine a fair settlement after a car accident (Read More: What is a fair settlement for an auto 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 from car valuations for insurance purposes 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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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 KBB actual cash value 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.  Insurers consider several data points, and while an insurance Blue Book value provides a baseline, the final valuation can differ based on internal assessment tools and market analysis.

If you disagree with the actual car value your insurance company gave you—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 and dispute the claim (Read More: How to Dispute an Auto Insurance Claim). 

Case Studies: How Major Insurance Companies Value Cars

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 insurance adjusters use and the specific algorithms applied.

Learn More: How do insurance adjusters determine the value of a car?

It’s important to note that while these tools provide a good starting point for car insurance values, 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. Take a look at some examples of how companies value cars below. 

Case Study #1: Allstate

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

Case Study #2: Geico

Geico typically uses CCC data to assess car values for claims. The Geico actual cash value calculator 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.

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.

Finding the Right Auto Insurance for Your Vehicle 

Understanding how your ACV car value is assessed can significantly impact the insurance process and your financial planning.  It’s important to get the right car insurance coverage for your car, with most drivers opting for full coverage auto insurance or gap coverage for newer cars. 

Don’t leave car valuation for insurance purposes to chance. Use our secure, easy-to-use comparison tool to compare quotes from top-rated insurers. Enter your ZIP code below and ensure you’re getting the best possible coverage and value for your car. 

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