Determining Used Car Value After an Accident

by Don Elliott on May 15, 2012

CRASH! Out of nowhere another driver smashes into your car. It looks bad. You’re okay, but pieces of your car are all over the intersection. The ride in the tow truck after the accident is something you’ll never forget—and not in a good way.

The insurance company tells you that your car is “a total loss”. What does that mean exactly? First, it is necessary to determine which insurance company has the liability to pay. If the accident is determined to be your fault, your insurance company will be the one making the settlement. If the person who crashed into you was at fault, their insurance company will make the payment.

The difference may come down to the amount of your deductible with your insurance company. You will not have to pay the deductible if the other person is determined to be at fault and only if they have insurance to cover the damages.

When the cost to receive automotive repair is more than the actual cash value, your insurance company may refer to your car as a total loss. An appraiser, who uses guidebooks, will compare the used car values. Using this information, and advertisements for similar cars being sold in your area, the appraiser will determine the actual cash value. He will adjust for any pre-existing damage, mileage, options and other conditions that are actually part of your used car value, good or bad.

Here are two examples of total loss calculations:

Vehicle #1 – Not a Total Loss
Actual cash value of your vehicle $7,800
Estimate to repair your vehicle – 4,500
Used car value with the damage $3,300

Vehicle #2 – Total Loss
Actual cash value of your vehicle $7,800
Estimate to repair your vehicle – 8,500
Used car value with the damage $ – 700

Insurance companies consider the salvage value of your damaged car when making a total loss calculation. In many cases, the damage to your car might not be worth more than your used car value. However, the salvage value of your damaged car might be high, which may make it advantageous to declare the car a total loss.

According to Progressive Insurance, only about 17% of the vehicles that have a claim are ineligible for auto repair and declared a total loss. Some states mandate that vehicles be considered totaled when the damage reaches a certain percentage of actual cash value. Check with your states Insurance Commissioner to see what rules apply in your state.

And remember, the amount that you owe on your car is not the same as actual cash value. It is possible the settlement amount is less than the amount that you owe. In that case, you will be responsible for the difference before the bank will release the loan.

If you think that you are upside down on your car loan, it might be a good idea to invest in gap insurance. Gap insurance costs several hundred dollars and does not have to be purchased from your car dealer, but it will cover the difference. Check with your insurance agent about whether you need gap insurance before you have an accident to make sure you’re covered.

Nobody likes surprises, particularly the car crash kind of surprise.

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