Comprehensive and collision insurance covers you for losses, including repair or replacement, when your vehicle is damaged in a collision. But insurance companies will not just write a check for the maximum coverage amount under your policy. Generally, the amount you receive is determined by an insurance adjuster who will take various factors into consideration when calculating the settlement .
Repair or Replace
An auto insurance claims adjuster will determine whether it is best for the insurer to pay the cost to repair a vehicle or to simply declare the vehicle a loss and pay a settlement based on the vehicle's value. The cost to repair might be based on one or more repair estimates from licensed repair facilities or from the known average cost to repair certain damages. When the cost to repair a vehicle equals or exceeds the actual cash value, an auto insurance claims adjuster will advise the insurer to simply total the vehicle and pay the claims settlement. If the insurer agrees, the vehicle becomes the property of the insurer and likely would be sold as scrap metal.
Cash or Replacement Value
When the adjuster declares a vehicle as totaled and the vehicle is more than a year old, the claim is usually settled based on a vehicle’s actual cash value rather than the replacement value. Actual cash value is based on the original cost of an item minus any depreciation in its value from the time it was new. Unless a vehicle is less than a year old, auto insurers will use actual cash value to determine potential claims settlements. If a vehicle is less than a year old, the insurer would likely pay the cost to repair or replace it without factoring in depreciation.
Depreciation and Deductibles
Depreciation typically is determined by assessing a vehicle’s market value, which tends to go down over time as newer vehicles are built and sold. When auto insurance adjusters determine settlement amounts, they use resources such as Kelly Blue Book and similar valuation tools to determine the current value of a vehicle and base claims on that value. If proof of aftermarket upgrades is available, for example, an aftermarket audio system, those items will be factored into the actual cash value. Once the actual cash value has been determined, claims generally will be settled minus any deductible.
Adjustment for Injury Claims
Damages are not the only source of loss in car accidents. Injury claims also can be filed and many times will require the work of a claims adjuster. When an adjuster examines injury claims, she will need the cost of medical bills, evidence of lost income, estimates for repair bills and other proof of financial loss arising from an accident involving the insured vehicle. Once the necessary information is provided, the adjuster uses a formula to determine the settlement amount up to policy limits. That formula often multiplies the cost of damages by a number ranging between one and 10, based on the severity of injuries suffered. The result determines the settlement amount.
Mike Heuer is a seasoned print media journalist with more than 20 years of experience in publishing. A former insurance producer in Nevada, he has been writing about insurance and finance topics for more than six years and enjoys motorcycling. He holds a master's degree in public relations from Michigan State University.