Actual cash value (ACV) is a method of determining a vehicle’s worth at the time of a covered loss.
Understanding actual cash value may be helpful for vehicle owners because it could directly impact what you might receive in the event of a claim. Whether you've experienced a fender-bender or a total loss, the actual cash value calculation may be a crucial factor in the financial outcome of your claim.
Actual cash value vs. replacement cost
In auto insurance, there are typically two approaches carriers might use to value your vehicle after a covered accident: actual cash value and replacement cost.
Actual cash value is generally used to determine the current market value of your vehicle minus depreciation. This means the insurance carrier may consider your vehicle's age, condition, mileage, and the current price a vehicle of similar age and condition is selling for in your area. These factors are also typically considered when calculating a settlement amount.
On the other hand, replacement cost usually refers to the amount it might cost to replace your vehicle with a new one of the same make and model, without accounting for depreciation.
Many auto insurance policies from carriers may use actual cash value rather than replacement cost when calculating potential payouts for total losses, but these determinations vary from one incident to the next and may be dependent on the carrier and policy conditions.
How actual cash value works in insurance claims
If an individual’s vehicle is declared a total loss after a covered accident, their insurance carrier might determine the actual cash value by examining multiple factors about the vehicle’s condition. The resulting actual cash value amount, minus their policy’s deductible, may be the amount that the insurance carrier would pay the policyholder to go toward replacing their vehicle.
The actual cash value amount will most likely factor in the vehicle’s depreciation over time. In a covered total loss, the settlement from a carrier may be based on several factors surrounding the vehicle’s depreciated value.
Factors affecting actual cash value
Several factors may influence how carriers determine actual cash value:
- Vehicle age: Older vehicles may have a lower actual cash value.
- Mileage: Higher mileage may hinder a vehicle’s value.
- Condition: Vehicles in good condition may be valued higher than those with mechanical issues or cosmetic damage.
- Market factors: Local market prices for similar vehicles can impact how the carrier values a vehicle.
Understanding your auto insurance options
Auto insurance policies may vary in how they address actual cash value and vehicle coverage. Infinity Insurance Agency, Inc. (IIA) works with carriers that offer a variety of auto insurance policies. Talk to one of our Spanish bilingual agents who can help you make an informed decision about your coverage options.
Call IIA at 1-855-478-3705 or get a free quote online today!