Expert: Richard Hixenbaugh - 4/2/2009

Question
Hi Richard, I am considering my collision coverage options and need to know what the insurance company will pay out in the event of a total loss of a vehicle.  More specifically, what reference do they use to determine pay out, i.e. Kelly Blue Book, avg. retail, avg. wholesale, etc.  There is a somewhat large span between these values and I want to need to determine if it is financially sensible to keep collision coverage. Thanks.

Answer
Hi Nick,

Each state has different requirements on how to determine the value of a vehicle at the time of a total loss. Most policy's indicate that they will pay the Actual Cash Value (ACV). In short this means the value your car could have sold for just moments before the collision, taking into consideration the year, make, model, sub-model, options, condition and the costs of reconditioning. Many people think it is the cost to replace your vehicle but it is not. It is the value of your vehicle at that moment.

Most insurance companies will utilize one of three outside services that will do a local market search and provide a valuation report of the value of your vehicle in your local market. Of course these outside services derive 100% of their income from the insurance industry and they allow the insurance companies to skew the figures to the lowest possible end of the market. In fact in recent years, some of these outside service have been sued to deceptive trade practices. You of course have the right to refute any amount determined by an insurance company.

As for your primary question; determining the value to see if it is worth buying collision coverage, you should go to www.edmunds.com and run your car through their True Market Value (TMV) appraisal process. Their data is purported to be durived from actual sale data. This should give you a fairly good idea of the value of your vehicle.

I hope this helps
Richard Hixenbaugh