Car Values Used by Insurance Companies
In case of a claim, insurers have various ways to determine a vehicle's value, depending on the provisions in the automobile's insurance policy. An insurer can determine the vehicle's value based either on depreciation or replacement. Some states also have a provision in their insurance laws for determining the diminished value of a vehicle.
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Cash Value
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An insurer might use a vehicle's cash value to determine the payment for repairs or replacement when a claim has been filed. Cash value is determined by an adjuster or insurance company, using a database of information that includes original purchase price, average mileage and wear.
Replacement Value
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Some insurers will use a vehicle's replacement cost when determining the value for a claim. An automobile insurance policy that has replacement cost coverage means that there is no depreciated value. Instead, the replacement amount is based on the cost to buy a new vehicle. Most insurers will base this on the same type of vehicle or a similar vehicle if the original model has been replaced.
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Depreciated Value
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Sometimes insurers use a vehicle's depreciated value when a claim is filed. Depreciation is the loss of value since a vehicle was purchased. An actual cash value provision in a policy will use the depreciated value of a vehicle, whereas a replacement cost provision will not.
Diminsihed Value
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Some states allow claims to be filed with an insurance company for the diminished value of a vehicle. Diminished value is the loss of value of a vehicle that has been repaired as the result of being involved in an accident. Diminished value can occur if an insurer does not pay for original equipment when repairs are made to a vehicle. Currently 14 states allow claims to be made for a vehicle's diminished value.
Gap Coverage
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If insurers use depreciation as the basis for valuing a vehicle for a claim, there may not be enough money to pay off an outstanding auto loan. For that reason, auto insurers offer what's known as gap coverage that will pay off the outstanding balance on a loan or a vehicle lease.
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