The aftermath of a bad car accident can seem like an endless string of disappointing news. You might find out your car is totaled, and to make matters worse, your car valuation is far less than you expected. It’s like sticker shock in reverse.

Naturally, you’re going to have questions about how the insurance adjuster came up with such a number. An insurance car valuation process might seem random and you could end up feeling like you’re being low-balled. But there’s a method behind the insurance madness. And you can negotiate for a higher settlement price.

How Do Insurance Companies Determine a Car Valuation?

If you have collision and comprehensive insurance and your car is totaled in an accident covered by your policy—such as a car accident or flood—you can make a claim with your insurance company. If you do not have these coverage types, you can file a claim against an at-fault driver’s car liability insurance.

An insurance adjuster will inspect the vehicle and if it is declared a total loss, the adjuster will calculate your car’s actual cash value (ACV). The definition of the term “actual cash value” can vary by state.

For example, in Florida, ACV means “the cost to replace less depreciation.” In California, ACV refers to the dollar amount that a “knowledgeable buyer” is willing to pay and a “knowledgeable seller” is willing to accept. In New Jersey, ACV for a total loss means the cost to replace a car with a “substantially similar vehicle.”

While the process varies by insurance company, these are common factors used to determine a vehicle’s ACV:

• Make, model and year
• Depreciation
• Pre-loss condition of the car
• Mileage at time of loss
• Resale value of parts and metal (salvage value)
• Sales price of similar cars in your area

In some states, such as New York, sales tax is required to be a component of the ACV. However, New York does not require insurance companies to include title costs.

Insurers may be required to use specific guides to determine the ACV, depending on the state—for example, NADAguides. Insurance companies may be able to use other publicly available sources if they are approved by the state’s insurance department.

You can contact your state’s department of insurance to find out what sources are permitted for determining a car’s ACV.

Can You Negotiate a Settlement with an Insurance Company?

When the insurance adjuster makes a settlement offer, they should include a written explanation of how they came up with the amount. Ask for a copy of the valuation report if it is not included. If you disagree with the settlement offer, you’ll have the right to reject the offer and negotiate a new settlement figure.

But before you make a counter offer, it’s a good idea to do your own research ahead of time. Some of the documentation you might want to include to support a counter offer might include:

• A list of your car’s features. If the adjuster missed any special features, such as leather seats or an entertainment package, make sure to point these out. You may be able to also negotiate the value of permanently attached equipment, such as tool boxes or a wheelchair lift.
• The estimated retail value of the car. You can get this from sources such as NADAguides.
• Comparable sales of similar cars in your area. You can check online sources such as Autotrader.

Keep in mind, the insurance company does not have to accept a counter offer. If you don’t come to a settlement agreement, you may have other options. For example, in Texas you have the right to pursue legal remedies including mediation, arbitration or a lawsuit.

Agreed Value vs. Stated Value

If you have an antique, classic, collectible or even a “modern classic” car, you’ll want to look into classic car insurance. That’s because a classic car doesn’t always depreciate in value like a regular car. You’ll typically have two different payout options if your classic car is totaled:

• Agreed value. You and your insurance company agree upon the value of your vehicle in advance. If your car is totaled, you’ll be paid that amount (minus your deductible). If your car appreciates in value, you can change the agreed value amount when your policy renews.
• Stated value. You can “state” what your car is worth (along with supporting documentation) and your car will be insured for that amount. But if your car is totaled, your insurance company can choose to pay the lesser of the stated value or the actual cash value.

Agreed value is the better choice for classic car owners because it guarantees that you’ll recoup your financial loss if the car is totaled, but it is more expensive than stated value. Keep in mind, most standard insurance companies don’t offer agreed value coverage unless they partner with a specialty provider such as Hagerty.