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How do insurance companies calculate your car's value when they total it?

Sep. 5, 2007

How do insurance companies calculate your car's value when they total it? I cannot replace my car for the amount of money my insurer is offering. What can I do?

Jacques, Washington

When your insurer totals your car, it must write you a check for the amount your car was worth before the accident. Insurers use proprietary databases to calculate your car's market value, taking into account local market conditions, mileage, body condition, and other factors. As a result, consumers often receive a settlement offer that is less than they expected. However, it should not differ substantially from generally accepted "book values."

You can make sure you're getting a fair settlement by doing research into your car's value before you accept the insurance company's check. For estimated values, check out used-car prices at Edmunds, the Kelley Blue Book, and the National Automobile Dealership Association (NADA) Guide.

In addition, I suggest you call local car dealerships to find out how much they are asking for cars with the same mileage and pre-crash condition as your car. Then you will know your car's market value in your geographic area.

Armed with these numbers, you can legitimately dispute an offer you consider too low. If the insurance company's offer isn't in your ballpark, show the insurer your research and ask it to show you where you can find a car equivalent to your former car, for the amount of money they are offering.

If there is a dispute over the settlement amount and the insurance company refuses to give you more money, you have two options: arbitration and litigation. Arbitration is a process in which you and the insurance company present your facts to a third-party arbiter. Arbitration can be binding (which means the arbiter's decision is final) or non-binding (meaning you can still take the insurer to court if you are unsatisfied).

But before you decide to pursue the matter in court, you have to weigh whether the fight to get more money for your vehicle is worth the expense.

You also can complain to the Washington Department of Insurance if you feel your insurance company is treating you unfairly.

For more information, I suggest you read: Total warfare: What to do when your auto insurer totals your car and Recouping expenses after your car is totaled.

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Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.

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