Car Insurance

How Does Insurance Companies Determine Car Value?

One of the most important things to consider when purchasing car insurance is the value of your vehicle. Many people are unsure of how exactly insurance companies determine car value, so here is a brief overview of the process.

When you purchase car insurance, it’s important to make sure that you are covered for the full amount that it would cost to replace or repair your vehicle if something were to happen. This means that you will need to provide an accurate estimate of the value of your car to your insurer. Here is how insurance companies typically calculate a car’s value.

Agreed Value vs Market Value

The two main ways that insurers calculate a car’s value are agreed value and market value. Agreed value is used when computing classic or collector cars and is determined by both the insured and insurer agreeing on an estimated worth for the vehicle prior to it being insured. Market value, on the other hand, is determined by taking into account factors such as year, make, model, mileage, and any modifications made to the vehicle in order to determine its current market value. The insurer will then use this information to set a price for insuring the vehicle.

Also Read: What Are Some Cheap Car Insurance Companies


Insurers also take into account depreciation when calculating a car’s worth. Depreciation occurs over time as vehicles age and can depreciate drastically depending on several factors such as condition and usage. In some cases, insurers may require proof of maintenance records in order to ensure that depreciation has been properly accounted for when determining a vehicle’s worth.

Other Factors

In addition to year, make, model, mileage, and any modifications made to the vehicle, insurers may also take into account other factors when calculating car values such as safety features or special equipment installed in the vehicle which could affect its overall worth. Additionally, insurers may also factor in additional premiums if they deem a certain make or model of car higher risk than others due to its potential for theft or other damages caused by accidents or extreme weather conditions.

How Does Insurance Determine Car Value After Total Loss?

When a car is involved in an accident and declared a total loss, insurance companies use a process called “Total loss valuation” to determine the value of the car. This is an important step in the claims process, as it determines the amount of money the insurance company will pay out to the policyholder.

The total loss valuation process takes into account a number of factors to arrive at an accurate value for the car. Insurance companies typically use a combination of industry-standard tools and the expertise of their own adjusters to assess the value of the car.

The first step in the process is to determine the pre-accident value of the car. This is typically done using a valuation tool that takes into account the make, model, year, and condition of the car prior to the accident. The insurance company will also look at the mileage and any special features or upgrades that may have been added to the car.

Once the pre-accident value has been established, the insurance company will then assess the damage to the car. This is done by sending an adjuster to inspect the car and take photographs of the damage. The adjuster will then use this information to estimate the cost of repairs.

If the cost of repairs exceeds a certain percentage of the pre-accident value of the car typically around 75% to 80%, the car will be declared a total loss. At this point, the insurance company will use the pre-accident value and the estimated salvage value of the car to determine the actual cash value ACV of the car.

The ACV is the amount of money the insurance company will pay out to the policyholder. This amount may be subject to deductions for things like the policy deductible, any unpaid premiums, or other factors. However, the total loss valuation process is designed to be as fair and accurate as possible, ensuring that policyholders are compensated fairly for their loss.

Also Read: How Do Insurance Companies Pay Out Claims on a Car


Understanding how insurance companies determine a car’s value can help you select an appropriate level of coverage for your needs while avoiding overpaying for coverage that you don’t need. It’s important to keep in mind that while depreciation plays an important role in determining a car’s worth, there are many other factors involved when selecting an appropriate level of coverage for your specific situation. With this knowledge at hand, you can more accurately assess what kind of coverage you need without breaking your budget.

Zoey Annette

Zoey Annette is the editor of Allstate Insurance. She's an Allstate insurance agent and a writer. Zoey loves spending time with her family, reading, and traveling.

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