How Does an Auto Insurance Company Determine the Payoff for a Totaled Vehicle?

Your total loss settlement may not pay your entire loan balance.

If your vehicle is ever declared a total loss by an insurance company, you may immediately check consumer pricing guides, such as "Kelley Blue Book" or NADA, to see what your car is worth. You may expect your insurance company to pay the amount listed in the guide; however, insurers typically do not use these guides to determine settlement amounts.

Vehicle Options

An adjuster from your auto insurance company will inspect your vehicle to determine whether it is repairable or a total loss. If he determines that it is totaled, he will fill out a report about your vehicle that includes its factory and aftermarket options. This is important because vehicles of the same make and model may vary according to the options packages they have. A vehicle with power steering, brakes, windows and mirrors will be worth more, for example, than the same one with no power options. Verify with the adjuster to make sure he catches all the vehicle's options.

Vehicle Condition

The adjuster will also record the vehicle's mileage and evaluate its condition before the loss. If she cannot record the exact mileage, she may use vehicle history reports or contact your car's regular maintenance provider to determine a close approximation. Then she will evaluate the condition of several of the vehicle's components, such as sheet metal, dashboard and engine, to determine if they are above, below or equal to the average condition of those items for the vehicle's age. All these things impact the settlement value you receive.

Comparable Vehicles

The insurance company will find vehicles of the same year, make, model and options package, or as similar as possible, that recently sold or are currently for sale in your local area. They will compile data to determine an average sales price for this type of car, adjusting this average figure up or down according to the mileage and condition of your vehicle, as outlined in the adjuster's inspection report. This represents your vehicle's actual cash value, and it is the basis for the settlement you will receive. According to your state's laws, the insurer may add sales tax or other fees and subtract any applicable deductible.

Final Adjustments

You may have significantly altered your vehicle by adding aftermarket parts, a new paint job or other custom work. If you feel this adds value to your vehicle, share this with your adjuster and provide supporting documentation as needed. If you performed any recent maintenance on the car, or replaced or rebuilt its engine, this may also contribute to your settlement amount. Remember that you will receive the vehicle's sales value. Despite your emotional attachment, a custom paint job or aftermarket lift kit may make the car less valuable on the open market.

References

• Car Insurance: Car's Salvage Value: How Much Does An Insurance Company Pay?
• GEICO Insurance: Learn about the Total Loss Process
• Progressive Insurance: Total Loss