Some who have recently filed an insurance claim, or others interested in the hypotheticals of the process, may be wondering how the depreciation of a vehicle affects claims payments from an insurer in the case of an accident. Like many other questions, there is a short answer and a long answer to this: both illuminate how the auto insurance world generally works.
The short answer to this question is that the insurance company pays less on your vehicle due to standard depreciation. The insurer will use any factor they can to decrease their payout, including vehicle age, mileage or any specific conditions that they can argue will decrease common market value. One essential point to keep in mind is that the insurance company does not care how much you have invested in this vehicle, what your loan status is or any of the rest of it. They only pay according to the “real value” of your vehicle.
There are a range of different ways to value an investment in a vehicle. One is called the Actual Cash Value, which is based on what the actual object is worth, in its current condition, in today’s market. Another way to value a car is Replacement Value. This includes finding the current cash value of the identical item new and calculating depreciation. Actual Cash Value will often be the lower value. A way to check out actual cash values or market values for most vehicles is with a blue book value check. The blue book value shows what a buyer would generally pay for a car on the open market.
If an insurance company comes back with a value that you feel is low, try to figure out what they were basing their calculations on. Call and ask for an itemized valuation. Then, make an counter-arguments in an appeal based on what you think the vehicle is worth. Use blue book values to your advantage. Another way to fight an ACV assessment is to use dealer appraisals or other professional car appraisal services.
So what if you owe way more on a vehicle than what it would be worth on the market? How does a driver safeguard his or her investment? Luckily, there is an insurance tool out on the auto insurance market that can help. Gap insurance simply covers the difference between the ACV or market value and the amount of a loan. It’s a supplementary insurance that will assure your company will not just base their valuation at market value for claim payouts. Gap insurance helps drivers make sure that they will not be left out in the cold if they get into a collision in a leased or heavily-financed vehicle. It’s a critical tool for many who drive a vehicle that is worth more than they could afford up front in cash.
Always think about the above when insuring any depreciated vehicle.