How does an insurance company determine book value?
Posted by: info | June 22, 2007
Many people are amazed at how low the book value of their vehicle can become. The book value of a vehicle is considered the fair market value a potential car buyer can expect to pay for a vehicle in a certain condition. The book value is calculated by make, model, mileage, condition, extra features, engine and more. Most drivers are unaware of their vehicles worth until something like a car accident, fender bender, hail damage, paint and body repairs happen or they decide to sell it.
The problem with a lower book value than a driver anticipates can cause big financial problems. If the driver has an accident in which the damages exceeds the amount of the vehicle’s book value, the car owner will not be able to get the vehicle fixed.
Instead of the insurance company repairing the vehicle, they will issue the owner a check based off the vehicle’s book value. This is also a big problem to drivers who have a lot of add-ons, expensive aftermarket parts or paint. These drivers know that their car is worth more than the book value, on the open market. More and more insurance companies have aftermarket parts, stereo equipment and other additional add-on insurance options a car owner can purchase for an additional cost. This insurance usually can be purchased in hundred dollar increments of replacement value. An agreement for the amount of available coverage can reached between the driver and insurance company based upon purchase receipts and equipment value.
In most cases, if an insurance company declares a vehicle to be totaled, they will issue a check and give an option to buy back the vehicle at a discounted cost. Totaled is considered a vehicle that has more damage than the book value’s worth. A lot of insurance companies will sell back the vehicle to the original owner for around 15-30% of the book value.
This is a very welcome site to most drivers. They will get a check for the damages and get to keep their vehicle as well. However, this doesn’t do justice to those who wanted their car fixed or feel that the book value is set too low. Also a totaled vehicle will become a salvaged title and the damages will be recorded on the vehicle’s history report. This is to protect consumers from buying a car that has been repaired, rebuilt or replaced without knowledge.
What if a driver isn’t happy with the book value? A driver really doesn’t have many options to fight against the book value of a vehicle. This is the most recognized and widely used way to determine a vehicle’s worth. A driver may want to consult with an attorney to find out more options. However, many courts use the book value as well and rarely will make any judgments against it.
For these reasons alone, any driver who owns a vehicle with additional work, parts or added features should have them insured. Also drivers financing their vehicles may want to purchase gap insurance. Gap insurance insures a driver the difference of the book value vs. the amount owed on the vehicle. Gap insurance is designed for drivers who owe a lot more than their vehicle is worth due to bad car deals, prior trade-ins, high mileage and longer financing terms.
Tags: book value, vehicle, auto insurance, insurance company, gap insurance, bad car deals, vehicle history report, car owner, aftermarket parts, vehicle’s worth
Posted in: Insurance, General |
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