I Totaled My Car, What’s It Worth?

I find that when someone totals their vehicle in an accident, they are not fully aware of how the total loss process works. Many believe that they will receive enough money to get a replacement vehicle. This is typically not the case. What they will receive is the value of their totaled vehicle, with all of its imperfections. This issue comes up quite often so I thought I would take a moment to explain the valuation process on an auto policy. Please note that the information provided below is assuming you have purchased the coverage necessary to repair or replace your vehicle after an accident.

In the insurance world there are two ways to in which an insurance policy pays out. One is Replacement Cost, and the other is Actual Cash Value.

Replacement Cost will provide you with the funds to replace your damaged item with a new one of like, kind, and quality without depreciating for the item’s age and condition. This is often found on home insurance policies, but some carriers do offer a similar coverage for vehicles purchased brand new that are totaled within the first year of ownership. This coverage often has a mileage restriction included. Contact your carrier or agent to see if this applies to your vehicle, and if so, what the limitations are.

Actual Cash Value pays you based on the value of the vehicle, but depreciates that amount based on the age and condition of the item. This is most commonly found in auto insurance. The vehicle value is assessed, and then the carrier will begin to deduct value for dents, scratches, mileage, normal wear and tear, etc. This will leave you with a lesser amount than you would typically find on vehicle valuation websites such as NADA or Kelley Blue Book.

For example, if your 2005 Chevy Trailblazer with 109,000 miles is totaled in an accident and you look up the value on www.nadaguides.com, you will see that the “clean retail value” for that vehicle is approximately $8,400 (depending upon vehicle options). Many people believe that this is the amount they should receive if their vehicle is totaled. This is simply not true. That value is based on the vehicle being in “clean” condition. This condition is defined by NADA as “A vehicle with no mechanical defects and passes all necessary inspections with ease; paint, body and wheels have minor surface scratching with a high gloss finish; interior reflects minimal soiling and wear, with all equipment in complete working order; vehicle has clean title history.” The fact is that most vehicles on the road with that kind of mileage do not meet that high standard. Therefore, the $8,400 value will be decreased based on the wear and tear and condition of your actual vehicle before the loss.

Another common practice by people who have had their vehicle totaled is to shop around to find a similar vehicle in their area and use the sale price to come up with their own value. The fact remains that many vehicles you will find on a dealer’s lot have been reconditioned and repaired before being put up for sale. These values are more closely aligned with the valuation websites mentioned above because they are restored to a near new condition (this is a relative term). These values may not align with your actual vehicle due to the wear on your particular vehicle. This includes brakes, tires, and other mechanical parts that may be worn on your vehicle but are new on the vehicle found at the dealership.

With all of that said, insurance carriers are not used car salesmen. They do not want to short-change you on the vehicle’s value. Most carriers are willing to work with you if you and the carrier do not see eye to eye on the total loss figure. I suggest that when you enter into a total loss discussion with your carrier you ensure that the carrier is aware of all of the vehicle’s options, as well as any repairs that have been recently made to the vehicle (e.g. you put new tires on the car a month ago, or just had your brakes replaced shortly before the accident, etc.) as this can make a difference in some cases. Providing proof of repairs, ensuring that the carrier is allotting for all of the vehicle’s options, and researching vehicle values in your area to find a starting point are all things that can help you find common ground with the insurance carrier when faced with a total loss situation.

Have you ever totaled a vehicle? If so, tell us your stories in the comments section below.