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How does a car insurance company value your car?

Friday, 03 September 2010 15:10

Although your car is insured for a certain amount, your car insurance company will only ever pay out what the car was valued at, at the time of the whether it is written off, stolen or hijacked. The valuation of your car is never the full retail value. The amount is calculated by a third party respective to its book value.

Unlike other insured assets such as jewelry and art, your car does not receive a valuation certificate from a third party annotating its value. The reason for this is most likely that the value of a car is constantly changing depending on its wear and tear, mileage etc. For this reason, the valuation of the car is relative (note: not the same as) the book value of the car.

After a new car is purchased, it is closer to the book value than if the car has been in use for a while. The book value decreases rapidly, depending largely on the type of car it is. It is also affected by the number of kilometres on the odometer, its service history, and accident record. These factors determine its value.

Insurers use reputable (hopefully) car dealers to determine the value of a car relative to its book value given these factors. There are other third parties, such as the Automobile Association (AA) of SA, that do car evaluations. This will cost you, but it’s worth it to do in order to verify that you are neither over nor underinsured

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