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How do insurance companies determine a totaled vehicle's value?

"Do they use trade-in value or actual cash value? Would it matter if I have replacement cost coverage on my policy?"

avatar
Emily Maracle · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“When a vehicle is deemed a total loss with an insurance company, they often use actual cash value to determine the vehicle’s value. Actual cash value is the cost of the vehicle minus depreciation.
Every vehicle depreciates over time. The newer your vehicle is, the higher its depreciation will be. Car insurance companies pay out based on this as you are never supposed to benefit financially from an insurance transaction.
The only time that this may differ is if you have
new car replacement coverage
 on your vehicle. With this, your insurance company will pay to replace your vehicle with a comparable car. The purpose of replacement cost coverage is to ensure you aren’t losing value on your vehicle if totaled.
Some insurance carriers also offer additional coverage that adds 20% to the actual cash value of your vehicle if totaled.”
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