Car replacement cost refers to the amount of money it would take to replace a damaged or stolen vehicle with a new one of the same make and model. On the other hand, the term actual cash value (ACV) refers to the market value amount of your car at the time of loss, which includes depreciation.
How vehicle replacement cost works
Insurance companies may use the ACV of a car to determine the payout to the driver after a covered event, typically providing an amount based on the car’s current market value. Due to depreciation, policyholders may get back less than they paid for the vehicle. A vehicle may be considered a total loss when the cost to repair exceeds the ACV by a certain percentage.
For example, a car costs $50,000 but has depreciated by 20% due to wear and tear, reducing its value by $10,000. This means an insurance company may only pay up to $40,000 if it’s in a covered accident.
Comparably, car replacement cost is typically the amount necessary to buy a new car of a similar make and model. This cost may not take value-reducing factors like wear and tear into account.
Who needs vehicle replacement cost coverage?
Auto replacement insurance, also referred to as new car replacement insurance, may help you mitigate financial losses caused by depreciation. It can potentially be useful to people who drive luxury or electric cars because they tend to lose value faster than other models. If you’re worried about paying high costs out-of-pocket after a total loss, you may want car replacement coverage.
Explore your car replacement cost coverage options
Infinity Insurance Agency, Inc. (IIA) works with over 20 insurance carriers to help you find policy options that suit your unique needs. Our team of experienced, Spanish-bilingual agents can help you find auto replacement insurance options that’s right for you from our network of carriers.
Call 1-855-478-3705 or get a free quote online today!