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A car is a big investment, so it’s important to know how car insurance companies find the actual cash value of your vehicle. This becomes especially important if you get into an accident or your car is stolen. Knowing how your insurance company values your car will help you make sure you’re getting the right coverage when picking a policy as well as keep you informed in the event you need to make a claim.
Learn how car insurance companies value cars using our guide.
What is Actual Cash Value (ACV) in Car Insurance?
The actual cash value (ACV) of your car is the amount your car insurance provider will pay you after it’s stolen or totaled in an accident. It’s a value placed on a vehicle that the insurance company believes someone would reasonably pay if the car had not been damaged in an accident.
How a Car Insurance Company Decides Actual Cash Value
When the time comes for an insurance company to place a value on your vehicle, it will use its own process — all insurance companies have their own valuation processes. The overall process will vary based on how your insurance company operates, but it should look something like the following:
- The insurance company will look at various factors (make, model, year, mileage, damage, cosmetic blemishes, options, wear and tear).
- The insurance adjuster will review comparable vehicles for sale in your area to gauge the car’s value had it not been involved in an accident.
- The adjuster will review prior claims filed against the auto insurance policy for the vehicle in question.
Important: Keep Receipts from Vehicle Parts or Repairs
Did you recently make repairs or upgrades to your vehicle before it was totaled in an accident? If so, providing these receipts to your insurance company’s adjuster can help with the ACV and the payout you receive. Installing a new engine, new tires, a new transmission, new brakes and other repairs can increase the ACV of the vehicle — even if it is an older model.
What is Replacement Cost vs Actual Cash Value in Car Insurance?
It’s important to note that the ACV will be less than the vehicle’s replacement cost should someone wish to buy it brand new. This means you will need to purchase a car that is a step down from the totaled vehicle unless you can afford to supplement the ACV funds with your own money.
When is a Car a Total Loss in an Accident or Theft?
When determining ACV, the insurance company will consider the following:
- Mechanical issues
- Wear and tear
- Cosmetic blemishes
- Supply and demand where you live
- Year, make, model
- Overall condition
- Major options
- Damage caused in the accident
After factoring in these considerations, car insurance companies will then subtract the deductible on your auto insurance policy and any applicable taxes and fees to reach the final ACV of the vehicle.
Depreciation is the most significant factor in how car insurance companies value cars. The minute a new vehicle is driven off the dealer’s lot, it depreciates by an average of 10%. By the end of the 1st year of owning the car, the vehicle’s value depreciates by a total of 20%.
Car Replacement Insurance vs Gap Coverage
If you have a lease on your car or have financed it with a loan, gap insurance can help if your car gets stolen or totaled in an accident.
Gap insurance makes it easier to pay off the remaining balance of a lease or auto loan if your vehicle is totaled in an accident and the ACV is less than what you owe. Gap insurance is an optional add-on to most car insurance policies. However, some lenders require their clients to have this additional coverage before approving a loan for a vehicle.
The money paid by gap insurance will be sent directly to your lender if a vehicle is totaled or stolen. You will not be able to use any of it to pay for the replacement of your car. The Insurance Information Institute (III) reports that gap insurance will cost on average an extra $20 per year on top of your sports car insurance premium.
Why Car Insurance May Refuse to Pay a Claim
ACV comes into play for all types of vehicles, including sports cars and commercial vehicles. Commercial car insurance companies might not pay you for your claim, even if the adjuster labeled your vehicle as totaled. There are quite a few reasons for a claim being denied.
1: Too Many Accidents
All auto insurance companies cover their clients based on the assumption that they will practice good driving skills to avoid accidents. An adjuster reviewing your claims history will look for multiple accident claims. If you have too many based on the insurance company’s policies, your claim might get denied.
2: Lapse in Payment
Failing to pay your premium by the due date could cause you to lose your coverage. Driving without auto insurance is not only illegal; it can cost you thousands of dollars if your vehicle is totaled in an accident.
3: Expired Registration
If your vehicle’s registration is expired or your driver’s license is revoked, a car insurance company will more than likely deny you payment following an accident. Car insurance can only be active when both of these items are active and in good standing.
4: Taking Too Long to File a Claim
All drivers are expected to immediately call the police when involved in an accident to have a report created and filed. The driver then notifies the insurance company within a reasonable amount of time. Some insurance companies set limits on when they need to be informed about an accident to pay a claim. If you missed this deadline, you could be out of luck when it comes to receiving money.
5: Having Inadequate Coverage
Choosing the lowest-priced policy because it’s all you can afford can wind up hurting you after an accident. The policies with the lowest premiums will also have the least amount of insurance coverage. This means you won’t receive nearly enough money from the insurance company to buy a new car if your current vehicle is totaled.
6: An Unregistered Driver Caused the Crash
If someone other than you was driving your car and caused the accident that totaled it and that person is not listed as being covered on your auto insurance policy, the car insurance company likely will deny the claim.
7: You Broke the Law
No matter how much coverage you have, if you broke the law in the accident that left your vehicle totaled, an insurance company is likely to deny your claim. Violations that can lead to a claim being denied include driving without a license, driving while impaired or drag racing.
8: You Broke the Terms of the Policy
All insurance companies include terms in their automotive policies that you must follow. If you broke the insurance policy’s terms, the car insurance company might deny your claim or fail to pay if your vehicle is stolen or totaled.
Best Car Insurance Companies
Now that you understand how car insurance companies value cars, it’s time to find the best car insurance companies in your area. When looking for a new auto insurance company, it’s best to review all of the available options before deciding. Take into consideration customer reviews, first-hand testimonials and your driving history.
Some car insurance companies automatically deny coverage for drivers with specific items on their driving records, including excessive tickets, multiple accidents or DUI convictions. Below, you will find some of the most trusted and best car insurance companies around:
Negotiate Your ACV with Your Car Insurance Company
It’s frustrating being involved in a car accident, and it gets even worse when a car insurance company doesn’t pay you the value you were expecting for your vehicle. When this happens, the ACV can limit your new vehicle purchase.
You either have to front the funds to make up the difference or purchase a lesser vehicle than the one stolen or damaged in the accident. Just know that you can negotiate, to an extent, the ACV assigned by your car insurance company.
Frequently Asked Questions
Blue Book (KBB) values?
It might seem like an obvious method to value a vehicle. Still, contrary to popular belief, car insurance companies do not use NADA or KBB when assigning the ACV to a totaled or stolen vehicle.
Car insurance companies use both NADA and KBB to gauge the value of a vehicle. Still, they will ultimately use their valuation process along with industry equations to determine the ACV of a stolen or totaled car.
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