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How Auto Insurance Companies Value Cars

There are different methods that auto insurance companies use to value cars. Regardless of whether or not you get into an accident, it is important to know how your insurance company values your car so that you can understand the costs involved. Also, you should be prepared to justify your car’s value if you feel that you are being charged too much.

In this article, we will look at the criteria that insurance companies use to value cars, and what you can do to make an accurate assessment yourself.

Why Does Your Car Value Matter for Insurance Companies?

The value that your insurance company perceives of your car is important because it determines both the premium that you will pay, as well as the amount that you will receive if the car is stolen or considered to be a total loss. The best car insurance companies will take a comprehensive look at your car before determining its value.

Factors Influencing Car Value

There are many factors that insurance companies take into consideration when calculating values.

Age of The Car

In general, newer cars are of a higher value than older ones, and therefore newer cars tend to have higher insurance levels. Newer cars generally cost more to replace than older ones do, and have more sophisticated features. For insurance companies, this means higher repair costs.

If you have a classic car or an older car with rare parts, you might also be put into a high insurance bracket because of the difficulty of replacing your car’s parts in the event of an accident.

Make and Model

The make and model of a car plays a role in its valuation. There are several components included in the valuation of cars by make and model, including:

  • Vehicle Size and Body Style: Bigger and heavier cars generally have higher insurance rates because of the increased risk of damage that they pose.
  • Trim Level: Additional features such as sunroofs, sound systems, and the use of luxury materials can add to insurance premiums because of their high cost.
  • Safety Features: A greater number of safety features can help reduce the risk of accidents and consequently lower premiums.


Mileage is incorporated into valuation based upon the make and model of a given car. Insurance companies use the average mileage of particular makes and models as standards, and if you exceed this standard then your car is of a lower valuation and will pay a higher insurance rate.


Cars that are in poor condition are valued at a lower rate than similar models in good condition. To determine the condition of your car, you should get an appraisal. This can be an important thing to have if you total your car and need to determine its value. In order to have a solid claim with your insurance company, having an official appraisal will help you receive the amount you deserve.

Accident History

If you have an accident while driving, your valuation will be lower. The amount that the valuation goes down will depend on the extent of the damage. Insurance companies calculate loss based upon a percentage of a car’s original value. If damage is structural, the value can decrease by 33%. If it is not structural, it might go down by 20-25%.

Demand and Availability

Demand and market availability for certain models sometimes affect a car’s valuation. If a model is rare and the demand for it is high, then it is valued at a higher price. If there are high supply levels of a given model, then it is considered easier to replace and its totaled car value will be lower.

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How Do Insurance Companies Determine Car Value?

There are four primary ways that insurance companies determine car value.

Actual Cash Value

One method is called actual cash value (ACV), or the cost of replacement minus depreciation. This incorporates different factors, including:

  • Your car’s age and its condition
  • The make and model of the car
  • The mileage at the time of an accident
  • The resale value of its parts
  • The price of similar cars to yours

Agreed Value and Stated Value

When you have an “agreed value” for your vehicle, you and the insurance company together agree upon its value. In this case, you will receive the agreed amount back, with the exception of your deductible, if you have an accident.

The stated value, on the other hand, is when you yourself state the value of the car. You will need to prove this with evidence, but it will allow you to insure the car for the amount that you state.

If you total your car, it is possible that your insurance company will choose to reimburse you for the agreed value rather than the stated value if the agreed value is lower. Whether or not this will happen depends upon your company and its policies.

Replacement Cost

Another method of determining value is known as replacement cost. This cost is based upon an estimate of a new car of the same make and model as a car that needs to be replaced.

Can You Negotiate With an Insurance Company?

If you have an accident and make a claim with your insurance company, the company will offer you a certain amount to repair your vehicle. If you feel that the amount is too low, you can try to negotiate with the company.

What to Do if The Valuation is Lower Than Expected?

It is important to have an accurate appraisal of your car’s value if you need to negotiate a valuation. If you have proof that your car is objectively valued at a higher amount than your company is willing to offer you, you can try to negotiate based on different criteria:

  • A list of your car’s features. If your car has special features or materials, and the adjuster neglected to include them in the estimate, you can make a note of them.
  • The estimated retail value of your car. If you get an appraisal on a regular basis, you should be able to supply this.
  • The prices of similar models in your area.

If the company is still unwilling to give you the amount that you want, you can ask for a justification of their estimate.

Final Thoughts

Determining car value isn’t simply a matter of looking at the sticker price of your make and model. Insurance companies look at many different factors when making valuations of cars. It is to your advantage to educate yourself on these factors as you will have a more realistic idea of how much you should realistically pay your company, particularly in case of an accident.

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