How do car insurance companies calculate damages?
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UPDATED: Mar 13, 2020
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Auto insurance pays for damage to vehicles involved in a car accident, or damaged by environmental factors such as wind. After a car accident, you may be wondering how much the insurance company will pay for your repairs. What if it’s not enough? How do you get your vehicle repaired? Will you have to pay anything out of your own money? By understanding how your insurance operates before an accident happens, you can put your mind at ease about what will happen if you ever need to file a claim.
Receiving an Estimate
In order to pay for your damage, the insurance company must do an estimate on your vehicle. At one time, it was common to obtain multiple estimates from body shops and submit these to your insurance company. Now, however, most insurance companies prefer to have their own adjusters come and assess the damage on your vehicle prior to approving a claim.
If you can safely drive your vehicle, you may be asked to bring it to an inspection location to meet with the adjuster. If you are unable to meet with the inspector at that location, or if the vehicle is not safe to drive, they may be able to come to your home or body shop to complete the inspection there.
When an adjuster looks at your vehicle, he or she will take photographs of all the damaged areas. He will then write an estimate based on the actual cost of parts as well as an average labor rate for your area. In order to get the best price match, the adjuster will utilize a software that searches for parts based on your type of vehicle and the location of the repairs; body shops use the same type of software, so the cost of parts should be fairly consistent among all shops. Labor rates do vary from one area to the next, however, so the estimate may not be identical to other estimates you may receive.
If your body shop is unable to do the work for the amount on the estimate, the shop can file a supplemental request with the insurance company. The insurance company will then review the amount of the estimate and negotiate a new price with the company.
Whatever the cost of your repairs, you will be expected to pay your deductible to the body shop at the time repairs are completed. If the accident is not your fault, you may be able to recover those funds later from the at-fault insurance company.
OEM and Aftermarket Parts
One thing to pay attention to on your estimate is whether your vehicle has been authorized for repair with original equipment manufacturer (OEM) parts or aftermarket parts. OEM parts are new, freshly-manufactured parts purchased from the manufacturer. Aftermarket parts do not come from the original manufacturer. They may be used, or they may be a generic brand. Functionally, there is no real difference between OEM and aftermarket parts, but some people prefer to only use OEM parts for their repairs.
When your vehicle is damaged, the insurance company is required to repair your vehicle to the condition it was in prior to the loss. If your vehicle is an older model, placing new parts on the car would improve its value beyond what it was originally worth, so insurance companies will usually not put OEM parts on a car that’s more than a few years old. If you want, you can always choose to use OEM parts and pay the difference in price yourself.
Total Loss Evaluations
If the cost of repairing your vehicle is the same as the value of the vehicle itself, your car is considered to be a total loss. Older vehicles can become totaled out with relatively minor damage; you may still be able to drive the car like normal. Extreme damage does not always mean that a vehicle is totaled, but it often does.
When a vehicle is deemed to be a total loss, the insured person is offered a settlement based on the actual cash value of the vehicle. This value is calculated differently from the Kelly Blue Book value and takes into account the condition of your car and the replacement cost through local sellers.
You can choose to retain the salvage rights on your vehicle. This means you buy back the car from the insurance company at a portion of its value. At this point, your car would have a salvage title, meaning that it is essentially considered worthless from an insurance standpoint and cannot be repaired by insurance again. You can choose to pay for the repairs out of pocket, however, and use the vehicle if you’d like.