What do I need to know about loss value reimbursements?

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 18, 2021

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Here's what you need to know...

  • Loss value reimbursement refers to the value assigned to vehicles when they are deemed to be a total loss
  • There are different types of loss value reimbursement such as actual cash value and replacement value
  • States do not require drivers to have loss value reimbursement, but a wise driver would look into it

In car insurance there is no such term as loss value reimbursement.

However, there are some who refer to loss value reimbursement as the value assigned to their vehicles when it is deemed a total loss after an accident.

In this case, it is the car insurance company that determines the value of the vehicle when this occurs.

When you buy car insurance, your vehicle is assigned a value based on the make and model of your vehicle as well as the mileage that is on your vehicle.

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What is actual cash value reimbursement?

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Most of us who purchase collision and comprehensive coverage on our cars are doing so on actual cash value basis.

Simply put, this means the insurance company will reimburse a driver whose car is totaled at whatever amount is needed to replace the vehicle with another one of similar year, make, and model.

Actual cash value relies heavily on the Kelley Blue BookNADA dealer prices, and the average price of similar vehicles in your local area.

Although actual cash value coverage is less expensive than replacement value, remember that you will not always get what you think is fair reimbursement.

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What is replacement value reimbursement?

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Replacement value reimbursement covers the value of your car in an amount that it would cost to fully repair or replace it with an identical vehicle.

To make this easier to understand think of a hot rod that has been customized with high-performance parts.

With an actual cash value policy, an insurance company would not take into consideration all of the money spent on high-performance parts.

You would simply get your car repaired or replaced at the value of an unmodified similar make and model. With a replacement value policy, all of those extra parts are covered.

This type of policy is a little more complicated because it requires you and your insurance company to reach some sort of agreement as to the value of your car.

If you plan to use this type of insurance, save all receipts for customized and high-performance parts. They are your only record to prove the value of your vehicle to the insurance company.

The insurance company will most likely also want to take pictures and have your vehicle appraised before writing the policy.

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When is the total loss value assigned to my vehicle?

When you apply for insurance, the insurance company assigns the loss value when they provide you with your quote.

Your total premiums will include a price based on how much the insurance company believes that it will have to pay if your vehicle is totaled in an auto accident.

Sometimes the loss value will change after you have paid for your insurance because some companies will provide you with a quote without checking your VIN first.

Once they run an accident report, if there is a report of an accident that required repairs on your vehicle, the total loss value will be reassessed.

This is really the diminished value for a vehicle. The value of a vehicle is diminished because after an accident the vehicle doesn’t have as high of a value on the open market.

Assigning a diminished value isn’t required in every state, so you may not be affected by this process.

If you are affected, however, you do have the right to negotiate with the insurance company over the value that they assign to your vehicle.

When does the insurance company tell me about my total loss value?

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The insurance company doesn’t have to tell you the value they assign your vehicle when you get car insurance.

What’s more, as your vehicle ages, this value will change each time you renew your car insurance.

You have the right to ask what the assigned total loss value is, but the insurance company doesn’t have to tell you.

If you are insuring a high priced vehicle with a niche company, then typically the total loss value is written in the policy.

In many cases, the insurance company doesn’t pay close to the total value of the vehicle if you were to have a total loss accident.

It is important to negotiate this with the insurance company and get the most for your car that you can.

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Do I have to have loss value reimbursement coverage?

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States don’t mandate minimum amounts of loss value reimbursement in terms of collision or comprehensive coverage.

Some states will require drivers to cover their bank’s investment, either through insurance or out of pocket.

In states that don’t, banks will often require collision and comprehensive coverage as one of the terms of approving the loan due to their need to protect their investment.

If you were to total your car, the only way that they can recover the money they loaned you is through your insurance policy.

Banks that have this requirement also have their own insurance policies that will kick in if you let your coverage lapse or choose not to carry it.

But be warned, their policies are significantly more expensive than what you could get through your own insurance provider.

By making it more expensive for drivers to use the bank insurance, they are encouraged to abide by the terms of the loan agreement and seek their own collision and comprehensive coverage.

How can I choose the insurance company that assigns the most value to my car?

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While getting a free quote is the best way to start this process, it is going to require a bit more legwork than if you want to ensure that you are getting the most money for your vehicle.

If your car has never been in an accident and you don’t have an outrageously priced vehicle, then most insurance companies are going to value your vehicle at market value.

However, if you have had an accident and your vehicle has been repaired, then the value may change a bit between companies.

Before you sign with an insurance company, speak with an agent and ask what total loss value they are assigning to your vehicle.

The good news is that there are dozens of insurance companies for most people to choose from, so don’t settle for anything less that what you think you deserve.

You can get FREE car insurance quotes to compare side by side by entering your ZIP code now!

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