Some policyholders think that their insurance will pay whatever the value they stated when they insured the car, if it is ever totaled. Considering premiums are calculated based on declared value of the insured automobile, it isn’t difficult to see why people make such assumptions. The fact of the matter is that insurers follow their own rules when it comes to determining the value of a vehicle that is lost totally due to an insured peril.
According to indemnity rules, insurance policies must pay for the actual loss. Policyholders should not be better or worse off after they are paid for a claim. If your car’s open market value is $10,000 and you get paid $15,000 when it is totaled you would have an incentive to make your car disappear, so to speak. This would create a moral hazard skewed against the insurer and they cannot have that.
Insurers must make sure that the settlement for a totaled car is fair for both sides. That is why they need to establish its current market value first. Then, your deductible and any cost of disposing the wreck will be subtracted from that figure. They would usually add the sales tax and cost of registering the replacement car to come up with the final settlement.
Regardless of how high you declare the value of your vehicle you would only get the open market value. They have no control over how you value your car and cannot be responsible for over-valuation. Nonetheless, they are happy to charge you more if you state the value too high. In which case, you would be spending more on your premium for nothing.
How to Determine Actual Cash Value of a Car?
Fair open market value of a vehicle would be its Actual Cash Value (ACV). You may have bought your automobile several years ago as new or second hand at great expense. Over the years it loses its value like most things. Insurance companies only look at its value at the time they have to pay for a total loss. Initially you may be disappointed with the money you get but you may understand their reasoning pretty quickly.
Generally, loss adjusters rely on resources like The Kelly Blue Book (KBB) when they are determining ACV because it is transparent and they can show you other vehicles that are similar age, model and condition as yours. In other words, they pay you enough to buy a car just like the one you lost and not what it was when you bought it. Depending on your policy terms and conditions, your reasonable additional costs like vehicle registration fee and taxes will be covered as well.
However, It is worth pointing out that sometimes loss adjusters may try their luck with a low figure and see if you would bite. You should be prepared for it and find out how much your automobile would sell if you were to offer it on the open market in its latest condition. Think about all the extras and its condition when you are looking up at KBB. A well looked-after auto would be worth a little more than a neglected one.
So, there may be room for negotiation and you could try it. You may need to explain as to why you think you deserve more and your research would be handy at that time. Reasonable approach may result in increase in the claim check.
What If You Want to Keep the Wrecked Vehicle?
If you are considering keeping it, you should let your carrier or the loss adjuster know before they dispose of it. There are a few things you need to know before attempting to salvage a total loss. First of all, some states may not allow it. Secondly, a few companies wouldn’t want to insure an auto that was written off by another insurer. Thirdly, you may get less money for your claim because the carrier may deduct the automobile’s salvage value, if there is any.
How Long Does It Take to Get the Claim Check?
This usually depends on how complicated the case is. Usually, it should be between three to six weeks after the accident. But it can be much longer if there are complications and third party insurers involved.