What is Your Car’s ACV?

Lots of auto policy holders are confused about how insurance companies value vehicles after a claim, and that leads to some consternation about the expected payoff.  Confusion about whether a vehicle is considered “totaled,” or how much the insurance company generally assumes a car is worth can also occur. Like other big-ticket items, vehicles are valued differently by different parties, which can lead to misunderstandings common in the auto insurance industry.

To better understand what happens after an auto claim, consumers should be familiar with some basic valuation methods for vehicles. One of these is the Actual Cash Value or ACV. The ACV is a common kind of calculation that insurers use to estimate the value of a used car. In fact, some dealers also use it to calculate a trade-in value. But ACV doesn’t go “by the book” in terms of mirroring Kelley or other blue book pricing. Instead, it uses a calculation based on what a type of car is generally worth, and how much a certain car has aged.

Determining ACV: Basic Calculations

To get the ACV, insurers generally use an idea called “depreciation.” This means subtracting amounts from the “fair market value” of a model depending on how many years it has been on the road. Depreciation is something that business owners will be familiar with, since it is used in tax calculations as well to value equipment that gets used in business each year.

The basic idea of depreciation and ACV is this: suppose that a car was worth $10,000 at the time of purchase. Five years later, the vehicle owner wrecks the car, and the company considers it “totaled.” The company may use ACV to figure a payout. ACV would then be calculated by the number of years the car could be expected to “last” or retain value. For example, if the car is expected to last ten years, then the ACV after five would be around half of the full market cost or replacement cost of the vehicle. It’s important to note, though, that the insurer would base depreciation, not on the amount at the time of purchase, but on a current fair market value.  In this example, if a newer version of the same model cost $15,000 at the time of the wreck, the company would apply the fifty percent calculation to the higher amount.

A Basket of Calculation Methods

Insurance companies may not use ACV exclusively to determine value. They might also use “replacement cost” based on current market values, or other more advanced calculations. Many times, the exact methods won’t be accessible to the policy holder. However, it is possible to get a better estimate of what a car is “worth” to an insurer by asking the right questions when talking to company reps. In general, it’s a good idea for vehicle owners to get comfortable with the terms “depreciation” and “ACV” and how those can figure into current values for when it’s time to negotiate with an insurer.

To learn more about the best Raleigh auto insurance available, call ACF Insurance Services Inc at 919-878-7786.