Understanding ACV for Car Insurance

With ACV (actual cash value) for car insurance, many factors go into determining it. Some of them include prior accidents, wear and tear, and depreciation.
Written by Bonnie Stinson
Reviewed by Kathleen Flear
If you don’t pay for extra coverage and your vehicle is declared a total loss by your insurance company, they will not reimburse you the amount that you originally paid for the car — they will reimburse you for the actual cash value, or the "ACV."
The ACV factors for car insurance include depreciation due to use, age, general wear and tear, and prior accidents the car has experienced.
Unfortunately, even if you’ve kept your car in excellent condition, it will still not be worth as much as you originally paid for it—cars usually depreciate around 20% in value the moment you drive them off the lot.
If your car was totaled, it’s important to understand how ACV is calculated so you know that you’re being fairly reimbursed.
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What is ACV?

ACV stands for actual cash value. It’s a reflection of the replacement value of your vehicle.
ACV takes into account
wear and tear
, depreciation, and any prior accidents the vehicle has experienced. A good way to understand ACV is to think about how much it might cost to replace your specific vehicle.
For instance, a 2010
Honda CR-V
in today’s market is worth much less than its value in 2010. If you’ve put a ton of miles on your car—and spilled stuff in the back seat—the ACV will take that into account.
Key Takeaway The replacement cost for your exact vehicle is the ACV, which takes depreciation into account. The ACV will often be thousands of dollars less than the value of a new car of the same make and model.

How do insurance companies determine car value?

To calculate the ACV of your vehicle, companies take into account:
  • General wear and tear
  • Mileage
  • History of usage
  • History of repair or parts replacement
  • Any prior accidents
  • Original value (natural depreciation over time)
  • How much comparable vehicles have sold for
  • Time since purchase
Each company has its own formula that accounts for aggregated national information about risk, value, and repairs from third parties to determine the amount of the insurance payout.
Generally speaking, you can expect that your ACV will be hundreds if not thousands of dollars less than what you originally paid.
If you’ve put a ton of miles on your car, or your kids have damaged it since you bought it new, you can expect your ACV to reflect that history.

How does a company use the ACV to reimburse me?

Some states have thresholds for insurance payouts. This is calculated by comparing the costs of the damage to the overall value of the car.
A car is considered fixable if it’s below the damage cost threshold—meaning, that the damage costs less to repair than the actual cash value of the car—and you won’t receive the ACV payment. Instead, you’ll be covered under a repair policy.
If it’s above the damage threshold, that indicates the vehicle will cost more to repair than the value of the car. In this situation, you will receive the ACV payout from the insurance company to reimburse you for the replacement costs of finding a similar vehicle.
You need
collision insurance
comprehensive insurance
to be covered for total loss. With this coverage, the company uses the ACV to calculate your compensation for the vehicle that was damaged (minus your deductible).
If you only had
liability coverage
and the accident was your fault, you’re out of luck. You will have to pay to repair or replace your vehicle out-of-pocket.

What if I think the ACV is too low?

You can always go to local dealerships and do research online to see what the trade-in value of your vehicle might be.
If your provider is offering you a rate that’s way too low, you may be able to negotiate a higher amount if you can provide data.
Your ACV is related to the resale value in your area. It won’t work to find higher rates from other cities. This guideline allows companies to pay fair market value for each customer.
Try using online marketplaces like Facebook, or check out Kelley Blue Book and Carfax. Use the VIN to look up your specific vehicle, or find listings that have your model and similar mileage.
There are
depreciation calculators
online that can help you get a sense of your ACV. However, you probably won’t come close to your insurance company’s valuation since they take into account other factors.
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ACV vs. new car replacement coverage

There’s another way to cover yourself in the event of a total loss.
ACV is the cash payout equal to the value of your vehicle at the moment before it's totaled. That amount may not be enough to get you a similar vehicle if you tried to buy the same car brand new. That’s why some owners opt for additional insurance.
New car replacement coverage is an optional policy that will replace your totaled car with a brand new vehicle of the same make model, minus your deductible. Basically, new car replacement insurance does not factor depreciation into your payout amount. This coverage can be quite pricey but can set your mind at ease if you have a brand new vehicle.
There are usually some qualifiers before you’re eligible to buy a new car replacement policy. For instance, the model has to be less than two years old with
has a mileage limit, similar to a statute of limitations. If you exceed that limit, your vehicle is no longer eligible for replacement coverage.
Gap insurance
might come into play if you had a loan or lease out on your totaled vehicle.
After the accident, you might find yourself in a situation where you owe more on your loan than you receive from your claim payout. Gap insurance is an optional and affordable addition to your regular coverage, and it will pay the difference between your loan payment amount and your ACV.

Stated value vs. agreed value

Let’s say you inherited a vintage car from a relative. You may not be able to afford to
insure a classic car
, so you make a stated-value agreement with the insurance company to buy a policy for a lesser stated value. This gives you a bit of coverage, but not complete coverage.
With stated value, the ACV clause means that the insurance company can pay out whichever amount is lower, the stated value or the ACV. That means, in the result of a total loss, you could wind up receiving less than the ACV.
Agreed value is what you’ll be paid by the insurance company if your vehicle is totaled. In this situation, depreciation and ACV will not be taken into account. You simply sign a contract with the company for a specific amount and agree upon the value.

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Frequently asked questions

Is ACV or RC better?

Whether ACV or RC is better depends on the car. If your car is brand new, usually RC is better. RC replaces your car with a similar make/model/value when a car is brand new or no older than 2-3 years. Since new cars depreciate very quickly, you're less likely to owe money on a loan, etc.

Does insurance pay ACV or RCV?

If you don't have RC on your insurance policy, it will pay ACV. If your car doesn't meet the requirements for RC, but you have a loan, this is typically where gap insurance is recommended so you don't lose value if your car is totaled and your loan is more than your car's ACV.
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