How Do Insurance Companies Determine Car Value?

by Jack Gerard

How Car Insurance Companies Use Value

Auto insurance companies make use of a car's value before and after the vehicle is in an accident. The owner's insurance rates are directly related to the car's value, as higher-value cars will require a larger payout on the part of the insurance company if the vehicle is in an accident. The more the car is worth, the higher the premiums. If a car is in an accident, its value will be calculated again to determine how much the insurance company will have to pay for repair work. If the total cost of repairing the car is higher than the car's value, the insurance company likely will pay the owner the value of the car and declare the vehicle a total loss.

Actual Cash Value

The actual cash value, or ACV, refers to the amount the car would be worth if it were sold in its current condition. ACV is used as a base line in determining the value of a car for insurance purposes, though not all calculations will coincide with the vehicle's ACV.

Determining ACV

A car's ACV is based on several factors. Price surveys from dealers who sell similar car models, industry guides such as the Kelley Blue Book and the prices that similar cars have sold for online and in non-dealer sales are all used by insurance companies to figure a vehicle's ACV. Other costs, such as taxes and registration fees, may also be included in or deducted from the ACV, depending on the insurance agency making the calculation.


While a car's actual cash value is generally determined in-house by the insurance company, a third-party appraisal company is often brought in for consultation when trying to determine the value of a car after an accident. The difference in value between the appraisal company and the ACV that was calculated by the insurance company is often used to determine the cost of the damage to the vehicle and may be used to set limits on how much the insurance company is willing to pay for repairs.

About the Author

Born in West Virginia, Jack Gerard now lives in Kentucky. A writer and editor with more than 10 years of experience, he has written both articles and poetry for publication in magazines and online. A former nationally ranked sport fencer, Gerard also spent several years as a fencing coach and trainer.