After an accident, an insurance company may decide to total your car if it costs more to repair it than to replace it. In which case, they will refuse to pay for repairs but will give you money for the car’s actual cash value. Actual cash value refers to a car’s worth immediately before a collision, while salvage value is how much the car is worth in its damaged state.
To determine whether a car is totaled, an insurance adjuster will first examine the vehicle, and its damage then calculate its actual cash value. To do so, they will compare your car to similar models being sold in the area, as well as consider its condition prior to the accident. The following will typically be factored into their calculation:
The better the condition and new the car, the more it will be worth. When the auto insurer is deciding whether your car is repairable or a total loss, they will have their own formula, which can also be affected by state law. For example, in Missouri, if the repair cost is 80 percent of the vehicle’s pre-accident actual cash value or more, it is considered a total loss. Typically, a vehicle with damage below that threshold will be repaired as long as it can be fixed to safely operate once again. As a result, it is important to know your car’s fair market value to ensure the insurance company pays you a fair amount.
If the insurance company decides to total your car, you will file a total loss claim, and you can either accept:
However, owing money to a finance company can be a problem if your car is totaled and you owe more than the vehicle is worth. This is referred to as being upside down on your car loan. If you carry gap insurance, this coverage will pay the difference between the amount you still owe on a loan or lease and the vehicle’s cash value. As a result, you will not have to pay any money out of pocket. For example, if you owe $20,000 on a totaled vehicle and the actual cash value is only $15,000, you would still owe $5,000 unless you have gap insurance which will cover the difference. The best choice for you will ultimately depend on your financial situation and the type of insurance policy your claim is filed under.
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