What Value Do Insurance Companies Use to Total a Car?

When insurance companies total a car, the value they pay out may be significantly lower than expected due to a variety of factors that consumers should know.

Why Do Insurance Companies Total a Car?

After an accident, an insurance company will declare a car to be a “total loss” if the cost to repair the vehicle is more than a certain percentage of what the car is worth. Even if the repair cost is not more than the car’s value, some insurance companies will declare a car “totaled” if the repair cost is 70 percent or more of the car’s value. Some policies will use agreed value (generally for classic cars) or stated value instead of actual cash value for total loss calculations.

If a consumer’s car is old and has a low resale value, it is more likely that their car will be declared totaled. For these cars, even simple repairs may exceed the insurance companies’ requirements for totaling a vehicle – meaning that consumers get paid.

How Much of a Car’s Value Will a Car Insurance Company Pay?

When an insurance company decides to total a car, they calculate the actual value of the vehicle and pay that money to the consumer. However, some policy owners may be shocked when they receive less money than expected. It becomes more challenging when total loss coverage does not recompense for taxes and fees.

Indeed, certain state laws require that insurance companies include extra fees and taxes in the actual cash value of a total loss vehicle that they reimburse you for, but some companies may not be reimbursing these costs.

How Is the Actual Cash Value of a Car Determined?

Under the terms of most traditional car insurance policies, consumers are paid what is called the “actual cash value” of a vehicle after it is totaled. This refers to the amount of money the car was worth at the time of the total loss.

Insurance companies may pay less than expected for a vehicle’s value depending on the criteria they use. Unfortunately, these criteria may not be transparent which can cause confusion on the part of the consumer. Year, make, model, mileage, and general condition are often used to determine the actual cash value of a vehicle, but it can be hard to determine which of these factors has the most sway.

Insurance companies use their own software to calculate the actual cash value of a vehicle. Because this software is inaccessible to consumers, it may be a good idea to get your own estimated actual cash value as well to determine whether or not the deal the company is offering you is a good one.

The lack of information about how an insurance company calculates actual cash value makes it difficult for consumers to bargain with their insurers. If they are unaware of how to calculate this value independently, they have no way of telling when their insurance company is offering a low value and when they are getting a good deal. In some cases, looking at car values on sites like Kelly Blue Book and car sale websites may help consumers get an idea of how much their car is worth, as well as noting taxes and fees paid.

Additionally, some consumer reports indicate that multiple insurance companies may be using inaccurate information to determine appraisal values.

In February 2019, the Massachusetts Division of Insurance agreed to investigate allegations regarding widespread car appraisal inaccuracy. The reports indicate that CCC Information Services, a Chicago-based firm that is used by many insurance companies to determine car values after total loss car accidents, may be using inaccurate information to determine vehicle values. CCC is used by several insurance companies including Allstate, Commerce, Farmers, Geico, and Liberty Mutual.

According to one complaint made against CCC by auto lender Source One Financial Corp., the firm may be coming up with these inaccurate values through sloppy work, or even through fraud. In one case, a man whose 2014 Ford Explorer was stolen was offered a lowball replacement sum after CCC adjusted the value of his vehicle down. He was told that the value was lowered due to numerous leaks in the vehicle’s transmission, significant dirt and grease in the engine, and tears, holes, and burns on the seats. However, as his Ford Explorer was never recovered after being stolen, there was no way for CCC to have examined the vehicle to make those assessments.

According to Michael Parsons, the chief financial officer for Source One, these fraudulent evaluations are widespread. He spoke to WBUR in February 2019, stating, “On a regular basis, we see [CCC] making claims regarding the sales price of motor vehicles that aren’t substantiated. In fact, Source One has sent out private detectives to make sure that the prices they give are fair. And what we’re finding is, on a regular basis, those prices are not the right price, either because they are discounting the price available [or] taking unreasonable condition adjustments against the consumer’s car.”

What Happens if the Actual Cash Value is Less than the Cost of Replacing the Vehicle or Paying off a Loan?

When the cash value is less than the cost of replacement or loan debt this is called a “shortfall”. This usually happens when the value of a car depreciates faster than the consumer is paying off their loan. Unfortunately, this is not uncommon.

Drivers hit with lacking total loss accident payouts can avoid shortfalls through gap insurance and new car replacement coverage. Guaranteed auto protection (GAP) insurance is specifically designed to make up for the difference between a car’s actual total value and the remaining amount on a car loan.

New car replacement coverage acts similarly and helps to smooth out the replacement process. Drivers may also avoid this potential problem by making as large of a down payment as possible on their vehicle and paying all of the taxes, warranties, and title fees associated with a new vehicle.

Total Loss Insurance Claim Litigation

A number of class action lawsuits have so far been filed against insurance companies after they failed to compensate car owners and lessees for all of the taxes and fees associated with a total loss claim.

If you bought or leased a vehicle sometime within the last five years that has since been considered a total loss, even if your insurance company paid your claim, you may still be owed some compensation for taxes or fees. You may be eligible to join or file a total loss insurance lawsuit.

Filing a lawsuit can be a daunting prospect, especially in the aftermath of a car accident, so Top Class Actions has laid the groundwork for you by connecting you with an experienced attorney. Consulting an attorney can help you determine if you have a claim, navigate the complexities of litigation, and maximize your potential compensation.

Join a Free Total Loss Car Accident Class Action Lawsuit Investigation

If you were insured under an auto insurance policy, experienced a total loss car accident, and were not reimbursed for sales tax and other fees by your insurance company in the last five years, you may qualify to join a total loss car accident class action lawsuit investigation.

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