An insurance company determines the value of a totaled car by evaluating how much it costs to repair the car versus the amount the insurance company must pay if it declares the car a total loss. Each insurance company calculates a totaled car's value differently, according to AutoTrader.com.
An actual cash value calculator is a computer program available only to insurance companies to help them determine the actual cash value of vehicles involved in wrecks, states CarsDirect. The insurance company compares the amount of money it expects to get selling the wrecked car to a salvage company to the amount of money it must pay to repair the vehicle after the owner pays the deductible, explains AutoTrader.com. If the cost of necessary repairs exceeds the amount a salvage company is willing to pay for the wrecked vehicle, the insurance company declares the vehicle a total loss.
Individuals who finance their vehicles need to make sure their auto insurance covers at least the outstanding balance of the loan, cautions AutoTrader.com. If it does not, gap insurance is available. This covers the difference between the vehicle's value and the amount of the outstanding loan. Generally, those who are not halfway through the term of the loan should purchase gap insurance. The company that provides the auto insurance policy normally adds gap insurance to the auto policy upon request.