WalletHub, Financial Company
@WalletHub
Actual cash value in car insurance is the amount a car is worth after taking factors such as age, mileage, and cosmetic damage into account. A vehicle’s actual cash value (ACV) is calculated by subtracting the vehicle’s depreciation from its original price.
Most car insurance policies will pay a vehicle’s actual cash value if the vehicle is totaled in a covered scenario. In this case, the ACV will reflect how much the car was worth immediately before the damage occurred.
Example of Actual Cash Value in Car Insurance
- You purchase a new car for $20,000.
- On the way home from the dealership, another driver hits you and totals your car.
- You receive a payout for $18,000, the car’s actual cash value.
Even though you just paid the sticker price for this car, the actual cash value reflects the fact that it was technically a used car right before the accident. In fact, the average car depreciates about 15% - 20% in the first year of ownership and 9% - 11% just for driving off the lot.
How to Get More Than a Car’s ACV From an Insurance Payout
If you want to receive more than a vehicle’s actual cash value in the event of a total loss, you can opt for a policy add-on like new car replacement or gap insurance. But bear in mind that these options will increase your premium since the insurer is agreeing to pay you more if you file a total loss claim.
Scott W. Johnson, Manager and Principal Broker Agent
@Marindependent1
Actual Cash Value is a common form of valuation that insurance companies use.
Generally speaking the two most common forms of valuation are Cash Value and Replacement Value.
Replacement Value is generally considered the better, more expensive coverage version. For personal property, it pays the amount to attempt to replace something that was destroyed or lost. There are limitations to this.
Actual Cash Value is the depreciated value.
For example a T Shirt that has been worn and washed and hence used will be worth only a fraction of what you paid for it. Perhaps 50%.
So if your T Shirt is destroyed in a fire. Would you rather have the $8 Value for it or the $16 repurchase amount?
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