No one wants to see their car totaled.
First, let’s fully clarify what it means if your car is “totaled”:
After an accident, if the cost of repairs exceed 70% of the value of the car, insurance companies would deem it a total loss. For example, if the car is worth $20,000 today, and the total cost of repairs tallied by the auto shop exceeds $14,000, insurance will consider it “totaled.”
Given this calculation, you might be wondering how exactly insurance determines the value of your car. Because they use that as a benchmark to determine whether to pay for the repairs or to consider it a total loss, it’s important to be aware of the methods insurance companies use to determine the fair market value of a car.
How the Fair Market Value of Your Car Is Calculated
Insurance companies use one of three following methods to settle of all their total loss claims:
1. Average Retail Value
This method simply uses the average of all retail values of similar vehicles listed in the current editions of the “Automobile Red Book” published by Penton Media, or the “N.A.D.A. Official Used Car Guide” published by the National Automobile Dealers Used Car Company.
2. Like Vehicle Quote
You send a quote to your insurance company for a similar vehicle available for purchase from a dealership within 25 miles of your residence.
3. External Source
Insurance companies use an approved source, including computerized databases—from Audatex, Mitchell International and CCC—that produces fair market values of substantially similar vehicles.
The third method is the most often used amongst the top 10 auto insurance carriers in Arizona, including State Farm, Farmers, Allstate, Geico, USAA, Progressive, Liberty Mutual, Pekin, Safeway, and American Family.
If all three methods fail to represent a true cross-section of your local market to mark the fair value of your car, the insurance company is required to use the best available method.
Insurance companies are also required to fully explain, in writing, how they calculated the amount they are offering you. In addition to showing which method was used to value your car, they also need to itemize all additions, deductions, and sales tax.
Can insurers deduct for any damage or rust that existed before the loss?
Yes. However, deductions for previous damage or rust must be itemized with specific dollar amounts. The amount by which the resale value of the car increases by eliminating the previous damage is the amount the insurance company can deduct from your total loss settlement.
The Cash Offer from Insurance
If your car was deemed a “total loss,” the insurance company will offer you payment for the actual cash value of the car. The cash value of your car is based on what similar vehicles are selling for in the Phoenix area.
Accepting a cash offer from the insurance company may help you buy another car similar to what you had before. However, there is a good chance the first offer from insurance is low—and that you could actually get more.
Before accepting their initial offer, compare it with the value of your car—same make, model, year and its condition just prior to the accident—listed in the Kelley Blue Book or on the Edmunds website. If the KBB lists a value higher than what insurance offered, you can request the insurance increase their offer and use the KBB listing to support your request. However, if you and your insurance company can’t agree on the cash value, you can submit the dispute to binding arbitration.
Upgrades Add Value to Your Car
If you’ve upgraded your car with new tires, rims, or even a custom paint job, you can argue that the value of your car is higher than both the KBB and insurance’s offer.
According to the Specialty Equipment Market Association, the average consumer spends about $2,000 on options or modifications during the first year after purchase. By providing proof such as receipts and invoices, you can also get partially compensated for any additions or upgrade jobs on your car.
Getting Compensated for Loss of Use
Because you cannot drive your car, you incur additional expenses that would not have otherwise occurred. These include car rentals, towing costs, car storage expenses, the diminished value of your car due to the accident, etc.
If the other driver was at fault, he or she should compensate you for these expenses due to the loss of use of your car.
Submit a Property Damage Claim
If your car was totaled in the Phoenix area due to an accident through no fault of your own, our lawyers at the Thompson Law Firm can help you seek reimbursement for your property damage claim and the loss of use of your car. There’s no need to pay us until after you get reimbursed for all property damage costs. Our fees are based on contingency.
When you’re ready to move forward with your claim, please contact our office to arrange a free initial consultation.