Why is ACV important?
Actual cash value comes up when a car is totaled or heavily damaged. If it would cost more than a certain percentage of your vehicle’s ACV to repair it, your insurer will declare your car a total loss
. Your insurance company will then use ACV to determine how much they will pay out for your car. Is ACV negotiable?
Somewhat, but not really. If you and your claims adjuster come to wildly different actual cash values for your car, you can ask to negotiate, but you’ll need to prove that your estimate is more accurate than theirs.
If the insurance company won’t budge, you can always hire a private appraiser. You’ll have to foot the $200 to $300 bill yourself, though. If your estimates are close, it’s probably best to take the insurance company’s offer.
Actual cash value vs. replacement cost value
While actual cash value takes depreciation into account, replacement cost does not. Replacement cost is the amount you’d have to pay to purchase the same or similar car new.
This means that your car’s replacement value is higher than the actual cash value of your vehicle. To ensure a payout that will allow you to purchase a vehicle comparable to the one that was totaled, many providers sell new car replacement policies.
What about gap insurance?
Another way to ensure you’re not left with a car payment after totaling your car is to purchase gap insurance
. Gap insurance pays out the difference between what you still owe on your car loan and the ACV of your totaled car. For example: Let’s say your $50,000 BMW
is totaled in a collision. Its cash value was $40,000 at the time of the accident, but the amount you owe on your loan is around $48,000. This means you’re "upside down" on your loan because you owe more than your car is worth. After your comprehensive
or collision coverage
pays out your actual cash value settlement, there will still be $8,000 outstanding on your loan. In this situation, gap insurance will typically cover the $8,000, minus your deductible
. Keep in mind: Most providers will only add gap coverage to a full coverage insurance policy.
How much does gap insurance cost, and where can I get it?
You can purchase gap insurance through your car dealership, your financing company, or your insurance provider.
Gap coverage typically costs about $20 per year from your insurer.
Gap insurance through your car dealership or financing company usually costs between $200 and $400 dollars.
Many major car insurance companies offer gap insurance—but not all. Some of the biggest providers in the country, including GEICO
, USAA
, Farmers
, and State Farm
, don’t offer gap insurance. View insurers and manufacturers that offer gap coverage
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FAQ
How do I figure out the actual cash value of my car?
Check out websites like Edmund’s and Kelley Blue Book to see how much comparable vehicles are going for. You’ll need to consider the mileage on your vehicle as well as its condition.
Does actual cash value only refer to cars?
The term “actual cash value” is used throughout the insurance industry. You might hear it in reference to other insurance products, like homeowners insurance
. Is ACV the same as salvage value?
ACV refers to the depreciated value of a car before an accident and salvage value is how much you can sell a totaled car for.