Car insurance companies usually pay out claims based on their assessment of your car’s value at the point of accident.
However, the payout is usually lower than you’d expect in most cases and that’s because your insurer uses several well-guarded factors to assess the value of your car and the settlement offer they’ll give you.
We’ll discuss how car insurance companies pay out claims and the factors that affect the payout amount in this post.
But you know the good news about all of this?
You can always challenge the payout claims and renegotiate the offer you received from your insurer. Of course, the deeper your understanding of the factors and nuances that surround the claims and settlement process, the stronger your renegotiation would be.
Related: How to Get Lower Car Insurance Rates
Factors that determine car insurance payouts
Auto insurance companies consider these factors when deciding the amount of payout you’ll receive after filing a claim. Feel free to ask your insurance agent questions about the payout process.
Let’s take a look at these factors.
Maximum policy limits
The maximum policy limit is the highest dollar amount your insurer will pay you when you file a claim for an accident. You can increase the policy limit by buying more auto insurance coverage on your policy.
Discuss with your insurer so you know the right amount of coverage you need to repair and replace your damaged vehicles, as more coverage equals a higher policy limit.
Actual cash value and replacement cost
One critical factor your insurer would look at before paying your claim is the actual cash value of the car. The actual cash value is the amount that an insurance company determines that the car could be sold for prior to the accident.
It is lower than the current market value of a car if you were to purchase a new one because your insurer would factor in things like the wear and tear, mileage, mechanical issues, make, model, year, overall car health, and depreciation rate excluding your deductible.
What this means is that you’re likely to end up with a settlement offer based on the actual cash value that isn’t enough to get you a new car of the same make and model.
That’s because brand new cars depreciate and lose value between 9% to 11% after it’s driven from the car lot. At the end of a year, the value of the car drops even further to 20%.
To get another car of the same make and model that’s around the market value of your damaged car, which is the replacement cost, you’ll need a replacement coverage.
Or you could use a gap insurance to make up for the difference between the actual cash value and the replacement cost.
Related: How Does Gap Insurance Work
Total loss and partial loss
A partial loss happens when a car is damaged in an accident but still functional. In a partial loss, your insurer focuses on paying for the repair costs of the vehicle since it isn’t impaired beyond damage.
When a car is damaged beyond repair and the cost to repair it exceeds a certain percentage of the actual cash value of the car, the insurance company declares it a total loss.
Most car insurance companies have a 70% to 80% limit on repairs before a car is deemed totaled.
That is, if the cost to repair a car reaches or exceeds 80% of the actual cash value, then it results in a total loss. But if it’s below the specified 70% or 80% repair limit, then it is a partial loss.
State of residency
All states have different laws that affects the payout of your car insurance company. Some states could have certain fees or taxes required in the settlement of policy coverages.
Others states have diverse thresholds for repair limits that could determine if a car gets totaled or not. You might need to discuss with your insurer to find out the peculiar factors that affect car insurance payouts in your state.
Liability coverage limits
You’ll only receive payouts from a liability coverage when you get hit by another driver. In that case, you’ll file a claim with the other driver’s liability coverage. That’s called a third-party claim.
The amount of payout you’ll receive is dependent on the amount of liability coverage the other driver has. If the amount it takes to repair your car exceeds the limits of the other driver’s liability coverage, you’ll be forced to take out your underinsured motorist coverage to fill the gap.
Presence of comprehensive or collision coverage
When you have collision or comprehensive coverage among your car insurance policy, it increases the likelihood of getting a payout whenever you experience an auto mishap.
The reason for this is simple.
A collision coverage reimburses you for the damage done to your car anytime it collides with another car or object, irrespective of who is at fault.
That’s unlike a liability coverage that wouldn’t compensate you for bodily and property damage to your car if you were at fault.
A comprehensive coverage also offers you a payout whenever you have a non-collision accident such as vandalism, fire, or natural disaster, even if you are at fault.
The presence of a comprehensive or collision coverage ensures you must receive a payout in the event of an accident.
Nature of car accident
Circumstances surrounding how the accident happened determines what insurance coverage to use.
If you hit or get hit by a car or object, your insurer will pay you from your collision coverage. If the accident is the fault of the other driver, you’ll file a third-party claim using their liability coverage.
Different accident scenarios would determine the insurance payout you’ll receive from your insurer.
How do car insurance companies pay out claims?
Car insurance companies pay out claims by issuing checks to the owner directly. If you owe a loan on the car, then the check would be given to you and your lender.
In a case where the car is leased, the insurance check would be written to you and the leasing company.
When you own the car fully, the insurance company would pay out the claim to you and you’ll be free to spend the check however you deem fit.
But when you finance the car or the car is on lease, then the financing or leasing company would demand that you use the money to fix the vehicle.
They’ll receive the checks on your behalf in most cases. But if they allow you to fix it yourself, then they’ll endorse the check before you cash it and deposit it directly to the auto body shop.
Note that you’ll be required to produce photos and documents to prove that the car is actually repaired.
How long does it take for car to pay out claims?
In most cases, it takes around 30 days for a car insurance company to pay out claims to a policyholder.
This is after a claims adjuster has determined the extent of damage in an accident and determined who is at fault. It is also after the insurance company has taken into consideration all factors that could affect the claims payout process.
When you and the insurer has agreed on the settlement offer, it would usually take around 30 days for the check to be issued to you or the finance or lease company.
How can I speed up my car insurance claim?
The process of making and finalizing an insurance claim could be easily prolonged due to several factors. However, there are steps to take to shorten the time considerably and get your insurer to pay out claims faster than usual.
Let’s take a look at them.
Avoid hiccups by filing for claims immediately after the car accident
The earlier you file an insurance claim after an accident, the easier and faster it is to get moving with the claims process.
Most insurance companies have a deadline for car owners to file a claim from the time of an accident. Some insurance companies leave the window open for 30 days, but state laws allow drivers to file a claim within two years from the time of an accident.
It is preferable to file a claim at the scene of an accident through your insurance app or on their official website.
That way, your claims adjuster would get to work and the backend deliberations on who’s at fault and how much settlement offer to pay would be quickly processed.
Make all necessary information available to your insurer
Take a lot of photos at the scene of the accident so your claims adjuster and insurance company would have a lot of material to work with.
Inadequate or missing information in the accident scene could halt the insurance claims process.
Aside from capturing the damage on your car and the other car, also take a picture of the other driver’s insurance information, the location of the accident itself, and any roadside property that influenced the accident such as a street sign.
Cooperate fully with the claims adjuster
Claim adjusters take over when you file a claim. They move on behalf of you and your insurance company to determine who is at fault in the accident, interact with the other driver’s insurance company, and negotiate a good payout for you if the other driver is at fault.
It’s best to quickly respond to any questions your claims adjuster requires of you. If they need more photos from the accident scene, give them. If they need you to come over and visit someplace, go with them.
Cooperating with your claims adjuster smoothens the process and ensures that you’ll be compensated faster.
Can I just keep the money from an insurance claim?
You can only keep the money from an insurance claim if you own the car fully, and you’re not under a lease. If you have no car loan or lease agreement on your car, then the insurer would issue a check to you and you can keep it for other purposes.
But if you owe a car loan, then the finance company would require you to use the money strictly for car repairs. You’ll also need to provide evidence of the repairs through pictures and relevant documentation.