What Is the Actual Cash Value of My Car & How Does It Work?

Actual cash value (ACV) is a term used to describe the amount an insurance company will pay to repair or replace an insured property, which can be a home or vehicle.

ACV is different from replacement cost. If an auto insurance company pays for replacement costs, it will reimburse the policyholder for 100% of the value of a new car.

Auto insurance companies use ACV to estimate the value of a vehicle on the market. To calculate the ACV of a car, insurers take the amount paid to purchase the car and subtract depreciation.

• What Is Actual Cash Value?
• What Is the Actual Cash Value of My Vehicle?
• How to Get More Out of Your Claim
• Frequently Asked Questions About Actual Cash Value

Actual cash value for auto insurers is the market price of an insured vehicle and the amount they will pay if the car is totaled.

Insurance companies calculate the value of a totaled car differently. That said, insurers typically use the amount the car owner paid to purchase the vehicle minus depreciation. That means the ACV of your car is less than the amount you spent when you bought it.

ACV should not be confused with replacement cost. Replacement cost is when a covered car is replaced with a new one after a total loss. Replacement cost coverage typically comes with more expensive premiums than ACV policies.

ACV is often used by auto insurance providers when a covered car is totaled. It is an important factor to consider when shopping around for an auto insurance policy.

Knowing what the ACV of your car is can help you determine how much car insurance you really need. If your insurance policy costs more than your car’s ACV, you might want to reconsider.

You may also refer to the 10% rule. If the annual cost of your policy is more than 10% of the cash value of your car, then you may opt not to have full coverage.

Whether your vehicle is new or not, knowing about ACV is essential. This is especially true when you’re shopping for car insurance.

New car insurance is different from a policy for older vehicles. Insurance companies consider the car’s ACV when calculating car insurance costs. Insurers take on more risk when covering higher-value vehicles and charge higher premiums for those cars.

The basic formula to compute the ACV of your car is to subtract depreciation from the original purchase amount. However, determining depreciation can be a bit challenging. There are actual cash value calculators for cars like Kelley Blue Book’s online tool.

While ACV determines the amount a policyholder may receive after a total loss, there are ways to get more than the ACV of the car. Generally, your claim amount depends on the type of policy you have. Obtaining additional coverage can help you get more out of your claim.

Policyholders may opt for new car replacement insurance. Your insurance provider will pay you enough to get the same make and model as your totaled car with this coverage. Your claim payout is more than your car’s ACV minus your deductible.

You can only get new car replacement coverage during a certain time window after buying a new vehicle. This coverage is best for new and luxury cars.

Another coverage to note is GAP insurance or Guaranteed Asset Protection. It is a coverage option for loaned or leased cars that pays for the difference between the balance the policyholder owes and the car’s ACV.

GAP applies when the insurance claim payout is not enough to cover the balance for the amount the policyholder borrowed to finance their car. It is calculated at the time of loss.

The ACV of your car can affect the cost of your insurance. That is because insurance companies typically use ACV to determine how much to pay a policyholder in the event of total loss. MoneyGeek answers some frequently asked questions to help you better understand ACV.