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Actual Cash Value
If you’ve heard the term "actual cash value" from your car insurance company, you’ve likely experienced a total loss.
Here, we’ll walk you through what “actual cash value” really means and what it means to you and your car auto insurance claim.
What Is Actual Cash Value?
Your vehicle’s actual cash value (ACV) is the fair market value of your car.
Your car begins depreciating the minute you drive it home; thus, it’s no longer worth what it was when you bought it—whether you bought it new or used. So even if you bought your car new a short time (e.g., 1 month) before the accident, the ACV could be much less than the sticker price.
Generally, your car’s actual cash value is important when:
- You’ve filed a claim with your car insurance company, especially a total loss claim.
- You’re attempting to sell/trade in your vehicle to a dealership or individual buyer.
For the purposes of this section, we’ll focus on how actual cash value comes into play during car insurance claim.
Actual Cash Value vs. Replacement Cost
Don’t confuse the actual cash value of a vehicle with the replacement cost. Actual cash value and replacement cost are not the same. Generally, the ACV is much less than the replacement cost.
Many car insurance companies offer some form of replacement cost coverage after a total loss claim, which—generally speaking—provides the payment required to replace your vehicle should the company determine it’s a total loss. Some companies will even pay you to replace your car with one that is a model year newer.
Be sure to speak with your auto insurance agent for more information about possible replacement cost coverage.
How Your Car’s Actual Cash Value Gets Calculated
Often, auto insurance companies will look at the replacement cost and then make deductions for:
- Normal wear and tear.
These examples can vary by insurance company, though, so be sure to talk with your agent. Have him walk you through each step; that way, you can enter the negation process well informed (see “Negotiating the ACV” below).
Actual Cash Value vs. Kelly Blue Book
The Kelly Blue Book (KBB) is a great place to start determining your vehicle’s actual cash value, and some insurance companies might even use it as a reference. Knowing the KBB and recent sale prices for vehicles comparable to yours can help you when you go to negotiate the ACV with your insurance company (see below).
Negotiating the ACV
If you aren’t happy with your ACV, consider negotiating with the insurance company. There are several ways to approach negotiation:
- Find out exactly how your company calculated the ACV.
- Have your agent explain it to you step by step.
- Check the KBB value yourself.
- Be honest about your car’s condition. For example, if it’s in poor condition, note it as so.
- Research vehicles comparable to yours.
- Look at their conditions and prices.
- You might have to visit used car websites or even dealerships, but in the end the payout could be worth it.
Remember, keep communication with your insurance company throughout the entire process. Let them know you’re researching the actual cash value yourself, and they’ll take note that you’re an active participant in the process.
How Gap Insurance Can Help
Gap insurance—or GAP insurance—is “Guaranteed Auto Protection” and is crucial for people who have leases or loans on their vehicles.
Simply put, GAP insurance covers the difference between your ACV and how much you still owe on your lease or loan.
So, say your ACV comes nowhere near covering the cost of your loan. Your GAP insurance would, essentially, bridge that gap rather than leave you with a vehicle you can’t drive but must still make payments on.