What Is Actual Cash Value?

Two damaged cars after a collision
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Getty Images / Steve Cole

Whether you own a car, a motorcycle, or an RV, these modes of transportation require insurance most of the time in most states. In order to protect your vehicle with an insurance policy, you need to know what the term actual cash value (ACV) means.

When Is Actual Cash Value Used?

ACV is a term you're likely to see when making a car insurance claim. If your car is physically damaged and deemed a total loss, and your claim is covered by your car insurance, the payment you receive is likely to be based on the actual cash value of your vehicle—not its replacement value.

Upon a successful claim, the insurance company will pay you (or the lienholder if the car is financed) the vehicle's market value minus any applicable deductible.

What Does Actual Cash Value Mean?

The ACV is the amount of money that your car insurance carrier will pay you if your car is totaled. It's not the same amount as what you paid for the car.

Actual cash value is the estimated value of what your vehicle would be worth on the open market.

You receive a payment for the actual cash value of your vehicle, not its original price, because your car, motorcycle, or RV are all depreciating assets, meaning that they lose value over time.

How Is ACV Calculated?

Actual cash value is calculated by taking the replacement value of a vehicle and subtracting depreciation, or the wear and tear costs that accumulate after purchase.

Replacement - depreciation = ACV

If your car is damaged, your insurance company will figure out whether it's a total loss by comparing its value to the estimated cost of repairs. If the cost to return it to its pre-loss condition exceeds the value of the car, the insurance company deems it a total loss. In some states, the threshold for a total loss occurs at a certain percentage. For example, in Alabama, if the cost to repair the car is 75% of its value, then it's a loss.

Your insurance carrier will look at several different factors to calculate the actual value of your totaled car, including:

  • Pre-loss condition
  • Mileage
  • Options
  • Age

It will also consider the car's "salvage value," which is the price its parts and metal could fetch on resale.

Insurance carriers don't use Kelley Blue Book to figure out these numbers; instead, each carrier has its own system for calculating total loss payouts. They may also rely on third-party help for the calculations.

However, you can still get a ballpark figure of what you might receive by using Kelley Blue Book to determine the value of your motorcycle, car, or other vehicle.

Note for RV owners: Check your insurance policy to see if you have actual cash value or replacement cost on your awning. Awnings are very susceptible to damage from weather, sun, and time. Some policies will offer replacement cost coverage at an additional cost.

ACV and Gap Insurance

Unfortunately, payment of the actual cash value of your car may not be enough to cover what you may still owe your lender if you're financing the car.

If you're financing a car and worried about covering the gap between what you still owe and what an insurance carrier might pay out in the event of a total loss, you may consider purchasing gap insurance. It's a type of coverage that helps you cover the "gap" between what you get and what you owe.

You may consider gap insurance if you're financing a new car for 60 months or longer, put less than 20% down, or are leasing your vehicle.

Alternatively, you can set up an emergency fund to cover the difference that you would have to pay in the event that your vehicle is totaled and you want to replace it with the same make and model. In any case, it is always a good idea to look over your auto policy options to make sure you're covered in the way you expect.

Alternate Types of Valuations

In addition to actual cash value, insurance companies may use other types of valuations depending on your policy and your vehicle.

Stated-value car insurance insures a vehicle for a stated amount, rather than its full value. Stated-value insurance is useful for high-value vehicles such as classic cars, where insuring the full value of the vehicle would be prohibitively expensive.

Replacement cost policies pay for the cost of a replacement, as opposed to the actual cash value of your current car. These valuations are not always available on car insurance, and if they are, they may be more expensive.

Agreed value may sometimes be called Guaranteed Value. It's an agreement between you and the insurance company as to the value of the car when you take out the policy.

Article Sources

  1. Progressive. "Total Loss." Accessed April 8, 2020.

  2. Kelley Blue Book. "What Is Depreciation?" Accessed April 8, 2020.

  3. Allstate. "When Is a Car Considered Totaled?" Accessed April 8, 2020.

  4. GEICO. "GEICO's Total Loss Process." Accessed April 8, 2020.

  5. Erie Insurance. "When Is a Car Considered Totaled – and What Happens When It Is?" Accessed April 8, 2020.

  6. GEICO. "Glossary of Insurance Terms and Definitions." Accessed April 8, 2020.

  7. Insurance Information Institute. "What Is Gap Insurance?" Accessed April 8, 2020.

  8. Progressive. "Replacement Cost vs. Actual Cash Value." Accessed April 8, 2020.

  9. American Family Insurance. "Agreed Value vs. Stated Value: What’s the Difference?" Accessed April 8, 2020.