When your insured car is damaged from an accident, the insurance company will pay the car's value, in other words the will pay their own "estimated value". Although you are free to use the money, whether using it purchase a new one or paid the car's installment, most people find it frustrating that insurance company usually underestimate your car value. They often lower the car's value than you expected, moreover the amount is not enough to purchase an equal replacement. For several person, the amount is not even enough to pay the car's installment. We all know that car repair cost is expensive let alone buying a new car.

Most of car insurance customers have no idea how the insurance companies value their cars. The insurance companies use esoteric method, refer to abstract data, and it's absolutely secret. They will be careful as possible not to reveal their method. Since they are not non-profit company, it is understandable. However, all insurance companies use a basic method to appraise your vehicle, you can use this for your consideration to negotiate with the insurance company.

The Valuation Process

Insurance company will send an adjuster to inspect the damage when you report a claim over car accident. What is an adjuster? Adjuster is an agent of insurance claims who will evaluating the insurance claim to determine the insurance company's liability under the terms of an owner's policy. The adjuster will determine whether the vehicle classify as "beyond repair". Even the vehicle can be fixed, the insurance company might consider it as wreck, if the repair cost is more than 60 to 70% of its value. Then, the adjuster perform an value appraisal but the damage will not be considered. The appraisal will be used to determine the estimate cash to offer for the vehicle. 

The insurance company also hire a third-party appraiser to determine their own estimate value of the vehicle. The purpose of hiring third-party is to minimize the errors and double-checking the estimated value by using different valuation methodology. At last, the insurance company considers its own appraisal and the third-party's appraisal before making the offer for its customers.

Actual Cash Value and Replacement Cost

One thing that people have to know is a big gap between insurance company's estimated value of vehicle and the amount of purchasing equal replacement. The insurance company use the actual cash value as their reference in giving offer. Assuming the accident did not happen, the company determines customers will pay for the car. The cash value include depreciation, mechanical problems, supply and demand in your area, and so on. Therefore, the actual cash value will be lower than the customer paid even the car is new and driven a year before the accident. The amount of actual cash value offer is also less than the replacement cost. Policyholder can purchasing car insurance that pays replacement cost. The monthly premium surely will be higher than the common car insurance.