Actual Cash Value: How It Works for Car Insurance

By Jennifer Brozic 06/14/2023 4:00pm

Actual cash value of a car graphic

Quick Facts About a Car’s Actual Cash Value

  • The actual cash value of your car is what it’s worth in its current condition or the amount you could reasonably expect to get for it if you sold it today.
  • When determining the value of a car, actual cash value accounts for the vehicle’s depreciation.
  • If an insurance appraiser returns with a higher ACV than the insurance company, you’ll have more leverage to negotiate with your carrier.

A car’s actual cash value (ACV) is how much it’s worth today. This value includes the depreciation of your vehicle. It also shows how much the insurance company pays out when it declares a car a total loss.

If you disagree with the insurer’s valuation, you may be able to negotiate a higher payout. However, you will need to have the evidence to back it up. We’ll tell you about a vehicle’s ACV, how it differs from replacement cost, and expert tips for getting the most out of an insurance claim.

What Is Actual Cash Value of a Car?

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 for it if you sold it today. 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 for it, even if it’s not that old.

How ACV Works

If the damage to your vehicle exceeds a certain percentage of the ACV, the insurer will declare it a total loss. They will reimburse you for the car’s actual cash value (minus your deductible). The threshold for “totaling” a vehicle varies by state and insurer.

What Is Actual Cash Value vs. Replacement Cost of a Vehicle?

When determining the value of a car, actual cash value considers the vehicle’s depreciation. Depreciation represents the loss of value since you purchased the car, and it’s determined based on multiple factors, including mileage, wear and tear, and accident history. The year, make, and model also affect how much a car depreciates because some vehicles hold their value better than others.

Replacement cost is how much you’d have to pay to buy a new version of the same or a similar vehicle. It’s higher than the ACV.

Which Is Better: Actual Cash Value or Replacement Cash Value?

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. Having replacement, known as GAP insurance coverage, 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.

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 but you wreck the car, and your vehicle’s actual cash value is $33,000, your insurance company will cover you for $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 you for the additional $7,000 for the replacement value. In this case, being covered for replacement value with the GAP insurance makes sense. 

For car buyers who pay cash outright when they purchase the vehicle, it doesn’t make sense to carry GAP insurance because they don’t have any loan differences to worry about.

How Do Insurance Companies Determine the ACV of a Totaled Car?

Here’s how insurance companies determine the actual cash value after a car wreck totals a vehicle.

  • Proprietary models. According to Josh Damico, Vice President of Insurance Operations at Jerry, a car insurance comparison service, some insurers have internal proprietary models, yet 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.
  • 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 them for a higher payout. But before you do, it’s a good idea to gather some evidence to improve your chance of success.
  • Research the value of your car. You can refer to Kelley Blue Book or other sites and use our car depreciation tool to double-check the insurer’s valuation. It’s essential to provide as many details as possible about your specific car to ensure you get the most accurate estimate.

Tips for Negotiating the Actual Cash Value of Your Car

“A good first step is to talk to the appraiser that came out and looked at the vehicle,” Damico says. Discuss all your vehicle’s options to make sure the appraiser understands everything included in your car. Be sure to include upgrades or after-market products.

“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.

“Before you do that, 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.