How Car Depreciation Factors In To Automobile Insurance Claims

When an automobile insurance holder files a claim, he or she is wondering how the insurance company will determine how much it will pay. Depending on the claim, the individual may need to replace the car or do extensive repairs. At times, the amount of money that the insurance company provides is not enough to do either because sometimes insurance companies calculate their payment cost using depreciation. In this case, an individual's auto insurance coverage will not likely pay for the entire vehicle to be replaced because they use depreciation to lower the value of the auto. However, the role that depreciation pays depends on how the insurance company calculates its payouts.

Insurance companies have different methods for valuing vehicles. Some calculate a vehicle's value by determining how much it will cost the owner to replace the vehicle. Others determine how much the ruined vehicle would be worth. If a car has not been stolen or totaled, then the insurance company usually simply covers the cost of the repairs or part of the cost of repairs.

Depreciation plays a role because the moment a car is driven off the lot, it loses some of its value. Insurance companies would argue that it would be unfair and unethical to use auto insurance coverage to purchase a new vehicle when the vehicle that was totaled was several years old. For this reason, the company takes into consideration depreciation before issuing a check that is meant to replace a damaged vehicle.

There are many factors that an automobile insurance company can use to determine how much a vehicle has depreciated. The first and most obvious measure is age. The older the car, the less it's worth; unless, of course, it is a classic. Similarly, mileage is an easy variable that companies use in calculating depreciation. The greater the mileage, the less valuable the car — in most cases. Automobile insurance companies may also consider what problems the car had before the accident or common problems that a certain make and model of car have before determining depreciation.

Simply put, insurance companies pay their beneficiaries the value of the car when purchased minus depreciation. This is a standard practice, and asking an auto insurance company not to do it would be unfair — unless a person literally totaled his or her car as he was driving off the new car lot. However, insurance companies do sometimes come back with prices that are too low. Consumers who think the company is over calculating depreciation may want to call the company to discuss the issue. Although they do not like to advertise this fact, some insurance companies will negotiate.

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