How do auto insurance companies determine payouts to policyholders involved in an accident?


Quick Answer

Auto insurance companies determine payouts based on the extent of damage to a car; companies typically declare older cars with significant damage and cars with projected repair costs exceeding their value as totaled. Auto insurance companies evaluate cars following accidents, accounting for all internal and external damage. They assess the car to determine type and extent of damage; after considering these factors, insurance companies issue checks to policyholders for repairs or pre-crash value.

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How do auto insurance companies determine payouts to policyholders involved in an accident?
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Full Answer

With relatively minor damage, insurance companies offer policyholders compensation to cover the cost of repairs. They typically declare vehicles sustaining damage costing around 75 percent of the vehicle's current value as totaled. Insurance companies structure payment differently for totaled vehicles. They might compensate policy holders for the value of the car based on current prices; these prices consider the same make and model of the car in prime condition.

When declaring losses, insurance companies typically consider the potential salvage price of working parts, such as engines and scrap metal that may fetch revenue in junk yards or mechanic shops. The total loss value deducts the price of still good parts. After declaring cars totaled, insurance companies issue checks for the assigned vehicle value to policyholders. They often refuse to cover the car, should policyholders choose to fix their cars instead of purchasing new ones. Although owners generally get new cars following a declaration of a total loss, they may try selling their old cars or the workable parts to third parties for additional revenue.

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