How Car Insurance Companies ACTUALLY Pay Out Claims

Most people think car insurance companies just cut you a check when something goes wrong, but that's not really how it works and that's part of why people are so shocked when they get their payout. In this video, I'll show you how car insurance claims are paid, who decides the amount, how long it takes, and three reasons that payouts are less than people think. Stick around for the end of the video because I'll show you how to estimate your own payout before you ever make a claim. If you've ever wondered how much is my car worth, why doesn't my insurer pay a full car repair cost, or why is my deductible coming out of my pocket, you're in the right place. I'm Mark Fitzpatrick, licensed insurance producer and personal finance expert at Money Geek, and I'm here to talk to you about how insurance claim payouts actually work. Let's start at the very beginning. When you start a car insurance claim, three things actually happen behind the scenes. First, your claim is logged and assigned. You're given a claim number for tracking purposes, and you're assigned an adjuster. Sometimes, nowadays, this adjuster isn't even a human being. For example, nowadays, for simple claims, insurance companies might simply have an automatic analysis of photos and your damage to estimate your total cost, but if the damage is serious or there's a dispute, that's where a human adjuster comes in. This is where judgment, negotiation, and deeper review will come into play. Second, your coverage is verified. Your insurer will check what type of coverage you actually have, what your deductibles are, before deciding the final amount paid to you. Third and finally, the insurer will determine the worth of your car. This is important because it might cost more to repair your car than its actual cash value, in which case it's a total loss. This is what helps decide what your payout actually is, so let's talk about that next. Payouts are where expectations and reality usually clash because most people overestimate the payout they're going to get from their car insurance company. It's important to note that an insurer won't pay you what you originally paid for the car, what you think the car is worth, or the money that you owe if you borrowed to finance that car purchase. Insurers pay the actual cash value of your car, which is an internal calculation by the insurers based on the expected depreciation of the value of your car over time. You've probably heard that your car loses 15, 10% of its value as soon as you take it off the lot. That's one example of depreciation, but there's also depreciation over years as your car ages. To calculate this actual cash value number, your insurers will look at your mileage, vehicle condition reports, the actual model of your car, and even third-party evaluations of how much car models are worth over time. This is why two of the same car models can get very different payouts. In a minute, I'll explain when and how you can challenge this number, but first let's talk about a big fork in the road about how payouts may actually work depending on your type of accident. Once the insurer knows what type of claim you have, they have to make a big decision. Is this car repairable or is it a total loss? If the damage is fixable, the math is pretty simple. The insurer pays the cost to repair your car minus your deductible. In many cases, they won't even pay you directly. They might pay the repair shop and you pay your deductible out of pocket. If the damage is worse than expected, the shop submits a supplement and the insurer will reassess. On the other hand, if the cost to repair is more than the actual cash value of your car, that calculated number, what you have is a total loss. In this case, your insurer will just pay you the actual cash value minus your deductible. Now, what happens if you take out a loan from a bank or the dealership to purchase the car, but you own more than what you actually get back from the insurer? Well, that's on you unless you buy gap insurance, which is an extra coverage on many car insurance policies that will cover that difference, so you're made whole. These discrepancies are some of the reasons that payouts from insurers can seem so painful to people because they're expecting a higher value back than what the actual cash value of their car is at the time of payout, and in the case of a total loss, they're left without a car. But here's a tip if you have some suspicions. If you think that the actual cash value of your car that came out was too low, you can actually challenge it. You're allowed to ask how they calculated that number and also ask them what comparison vehicles they use. You can also submit your own listings if they're missing features, mileage adjustments, or local prices. Now, of course, that doesn't mean you'll always get more when you file this challenge with the insurer, but it does mean that that first number isn't necessarily the final one. So quick recap, repairable claims are about fixing your car. Total loss claims are about the actual cash value of your car, not its market value when you bought it. Okay, let's talk about what happens if you're at fault for damage or injury to someone else in an accident. This is a liability claim, which is different from the coverage of your own car. This is your insurer covering the damage or injury to another person. If you're at fault in the accident, the aggrieved party, the other driver, will actually file a claim with your insurance under your liability coverage, and that claim will cover their injuries and their damage to their car up to your selected policy limits. Now, if the cost of the injuries and the property damage you caused to the other driver exceeds your limits, you have to pay that out of pocket. This is why sometimes selecting the absolute minimum car insurance, which might be anywhere from $30,000 to $50,000 in bodily injury liability, might not be enough for really serious crashes and could leave you on the hook for more damages in the future if you're at fault for an accident. We actually made a whole video on the topic of liability insurance and the complications of how it works if you click this above my head right now. Okay, so how long does all of this take? Well, obviously that depends on how complicated the claim actually is. For simple repair claims, you're looking at a couple of days to a week. For a total loss claim, you're talking about one to three weeks or even more. And for liability claims or disputes, this process can stretch out even more. Delays aren't usually random. They usually happen for a reason. For example, missing documentation. Insurers might not have the photos, reports, or ownership paperwork. Second, there's cases where fault needs to be investigated, especially in states where they're dividing up the percentage of fault by driver, or it even needs to go to court to be decided. Third, of course, repair shops can slow you down with unexpected costs or damages that may extend that timeline. And fourth, as we said, there can be disagreement over what the actual cash value of the car is. Most of the time the fastest way to move along a claim is to keep paying attention, submit all your documents in a timely manner, and keep that communication up. So waiting is frustrating, but even worse is getting caught with a lower payout than you expect. Here's how to actually estimate what your payout might look like before you have to make a claim. This is the move most people don't actually think to make, but can save you a lot of frustration. When you need to file a claim, do a gut check. Look up online some sort of actual cash value estimator and get an estimate of how much your car might actually be worth right now. Next, also look at your deductible and what coverages you actually have in your insurance. Then compare those things to the cost of repairing your car. If the cost of repair is actually pretty close to your deductible, you might as well pay for those repairs yourself. If you file a claim, your insurance probably will go up in the future and you're going to pay that deductible anyway. So if those values are pretty similar, you might as well pay to get those repairs yourself rather than filing with your insurer. And if you estimate your car's value and it's very low, you can usually see a total loss categorization coming and you'll know to expect it. This doesn't give you an exact number, but it will set you a realistic expectations for when you file a claim with your insurer. So car insurance payouts aren't random. They do follow formulas, although your insurer may keep some of the exact specifics of those formulas a little confidential. Now if you want to compare coverage options and understand what type of coverages you should have, you can go to moneygape.com and see all our guide content on how to buy insurance and how to find cheap insurance for you. And if this was helpful, please like the video, hit subscribe, there'll be plenty more guide content on how insurance works, which insurers are best in the country, and which are the cheapest options if you want to save some money.