How to Calculate Actual Cash Value (ACV)

Car insurance claim adjusters may not offer you enough if you’re being offered actual cash value for your car, not what you paid or owe.
Written by Jason Unrau
Reviewed by Carrie Adkins
Picture this scenario: you’re driving down the Pacific Coast Highway in your shiny BMW convertible. It’s just a few months old - you bought it right off the showroom floor. Out of nowhere, a seagull clips your windshield and scares the daylights out of you. You swerve into the guardrail (thankfully, not off the edge into oblivion) and bust up your Bimmer ragtop beyond recognition.
That’s what car insurance is for, right? All you have to do is settle up with your provider and head down to the dealership to buy the newest version. But after your first conversation with your adjuster, it becomes apparent it’s not that easy. Your car has depreciated since you bought it, and all you’ll get is the "actual cash value," not what you paid and not even what you owe on your loan.
In this article, Part 1 defines actual cash value, Part 2 explains how to calculate it, Part 3 discusses why ACV matters, and Part 4 tells you why gap insurance is important.

Part 1 of 4: What is actual cash value (ACV)?

How much you’d have to pay for your car again is its replacement value. How much you need to pay off your car loan in full is your buyout amount. And what your car is worth present-day, before that guardrail accident, is its actual cash value. All three numbers are probably very different.
When you signed your lease or finance agreement at the dealership was the last time the car was worth its replacement value. Once you drove it off the lot, it immediately depreciated a whole bunch. In many cases, a car’s value can depreciate up to 40% in the first year alone!
But while you owned your car, you made payments on the loan or lease. That drops the buyout amount down from the replacement value, but it takes months or years before it’s equal to or less than your car’s depreciated value.
That depreciated value is your car’s actual cash value. It’s the amount of money you could expect to receive if you were to sell your car - you know, without the busted fender, bumper, windshield, and the seagull stuck in the grille.
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Part 2 of 4: How to calculate actual cash value

It’s a bit of a tricky thing to figure out. Actual cash value requires your insurance adjuster to look past the immediate damage on your car.
Step 1: The make, model, and year are considered.
  • The insurance adjuster compares your broken car to similar vehicles listed for sale.
  • If there are very few or no similar cars for sale, historical data or Kelley Blue Book valuations may be used to calculate your car’s value.
Step 2: The adjuster factors your car’s condition into the equation.
  • It’s pre-existing damage that’s determined here. Items like worn-out tires, rust, vandalism, and peeling paint that are considered, reducing your car’s value from similar listings.
Step 3: The value is adjusted based on your car’s mileage. If your odometer reading is higher than average, your actual cash value will be lower.
  • Low-mileage cars are worth more, naturally.

Part 3 of 4: Why does actual cash value matter?

It’s a fair question - you’ve insured your car since new, so why wouldn’t you receive the price you paid for it? The fact is that your car factors in as only a small part in your car insurance premiums. Your policy is mostly about you - your driving habits, what state you live in, and the type of coverage you want and need. As such, you’ll need to go above and beyond with your car insurance policy if actual cash value isn’t enough.

Part 4 of 4: Gap insurance is the answer

What you need is known as gap insurance. In the event your car is written off, gap insurance covers part or all of the difference between your car’s actual cash value and your loan amount.
As an example, your $50,000 BMW is written off due to a complicated collision with a seagull on the PCH. Its cash value after just a few months may be only $40,000, but you’ve only had loan payments for a few months, so your loan amount is around $48,000. You’re "upside down" in your loan, meaning you owe more than your car is worth. How do you make up the difference? There’s $8,000 outstanding on your loan after your actual cash value settlement. Gap insurance covers it, at least in part.
Now, there could be a maximum gap insurance payout amount on your policy and the deductible may apply. In any case, gap insurance is a great way to make sure you don’t have to deplete your life savings due to an unfortunate accident. In some states, gap insurance may be part of your car loan or lease, while in other cases, you may need to buy it from your insurance provider. It's to your benefit to be aware of your gap insurance coverage.
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