What Is Actual Cash Value (ACV)?
The ACV of your car is what it’s worth in its current condition, factoring in depreciation. It’s the amount you could reasonably expect to get if you sold it today. This value includes your vehicle’s depreciation. It also shows how much an insurance company pays out when it declares a car a total loss. And because cars begin depreciating as soon as you drive them off the lot, your vehicle’s ACV will be less than what you paid, even if it’s not that old.
You may be able to negotiate a higher payout if you disagree with the insurer’s valuation. However, you will need evidence to back it up. Read on to learn how a vehicle’s ACV differs from replacement cost, how insurance companies determine ACV, and expert tips for getting the most out of an insurance claim.
ACV vs. Replacement Cost
Because cars depreciate so quickly, it’s easy to become upside down on an auto loan or lease, especially if you put little or no money down. GAP insurance coverage, or guaranteed asset protection, can help mitigate this risk. It helps pay the difference between what your car is worth and what you owe the lender or leasing company. Some car lease contracts require GAP coverage.
Many GAP policies even cover your collision or comprehensive deductible. And with GAP coverage, you won’t have to worry about whether the ACV of your vehicle is high enough to pay off your loan or lease. Many drivers carry GAP insurance during the first several years of owning a car.
For example, if you owe $40,000 on your car loan, wreck the car, and your vehicle’s actual cash value is $33,000, your insurance company will pay $33,000. You’ll have to come up with the extra $7,000 to pay off your loan. But GAP insurance, if you have it, covers the additional $7,000 for the replacement value. In this case, being covered for replacement value with GAP insurance makes sense.
For car buyers who pay cash outright when they purchase a vehicle, it doesn’t make sense to carry GAP insurance because they don’t have any loan differences to worry about.
How Insurance Companies Determine ACV for a Totaled Car
If the damage to your vehicle exceeds a certain percentage of the ACV, the insurer will declare it a total loss. It will reimburse you for the car’s actual cash value (minus your deductible). The threshold for “totaling” a vehicle varies by state and insurer.
Insurance companies use proprietary models to determine the actual cash value after a car wreck totals a vehicle. According to Josh Damico, vice president of Insurance Operations at Jerry, a car insurance comparison service, some insurers have internal proprietary models, but most use a third-party vendor. “Most carriers are connected to a third-party vendor that they’re feeding the data into. The data on the vehicle and any damage gets loaded into the third-party system,” he said. Then the software aggregates the information to calculate the vehicle’s actual cash value.
KBB Pro Tip: Your car’s ACV is negotiable. The ACV depends on multiple factors, including the year, make, model, vehicle options, mileage, wear and tear, and accident history. If you disagree with the insurance company’s estimate of your vehicle’s value, you may be able to negotiate with the insurer for a higher payout. But before you do, it’s a good idea to gather evidence to improve your chance of success.
Negotiating the ACV of Your Car
Step One: Speak with the car’s appraiser.
“A good first step is to talk to the appraiser that came out and looked at the vehicle,” Damico said. Discuss all your vehicle’s options to make sure the appraiser understands everything included in your car. Be sure to include upgrades or aftermarket products.
Step Two: Do comparison research.
“If you have evidence of other cars that have sold in your area and done your own research, you can present that to the adjuster and have a conversation,” Damico said. However, your research may only get you so far. If you can’t agree with the adjuster, you can hire a private appraiser. But you’ll have to pay for it out of pocket, which typically costs about $200 to $300, according to Damico.
Step Three: Know the book value of the car.
“It’s always good to check a site like Kelley Blue Book just to get an idea of whether what the appraiser is [offering] seems fair or whether [their valuation] is far enough off to assume the responsibility of hiring an appraiser,” he said.
You’ll have more leverage to negotiate if the appraiser returns with a higher ACV than the insurance company. But if the estimates are comparable, you may need to accept what the insurance company offers. If you want to explore more options, you can always compare car insurance from various carriers before deciding.
Bottom Line on Actual Cash Value
Your car’s actual cash value is its current market value, including depreciation. The figure represents how much your insurance company will pay if it declares the vehicle a total loss after a significant accident or damage from a weather event such as flooding. You might be able to negotiate a higher payout by presenting evidence of your car’s value if you disagree with the insurer’s valuation. ACV is not the same as replacement cost, and it’s crucial to understand the difference, especially if you’re financing a car loan. GAP insurance covers the difference between the vehicle’s value and the amount owed on a loan. Some vehicles may also be eligible for an “agreed value” policy, in which you and your insurance company agree to a value that will be paid if the vehicle is a total loss. Still, those policies are sometimes limited to collector’s cars and other models not covered by traditional policies. Be well-informed about your car’s value and the insurance process to help you get the most out of an insurance claim.
Editor’s Note: This article has been updated since its initial publication. Jennifer Brozic contributed to this report.
