What Is Actual Cash Value?


Imagine purchasing a new vehicle for $20,000 and then getting into an accident one year later. You prepare your insurance claim and expect coverage for the price you paid only for the insurer to respond with a much lower settlement offer than you anticipated. This may seem unfair, but the reality is that most standard auto insurance policies only cover a vehicle’s current market value at the time of an accident to determine settlement amounts. The “actual cash value,” or market price of a vehicle, can lead to a significantly lower insurance payout than a driver expects. To learn more, speak with an experienced Bakersfield car accident attorney.

How to Determine the Actual Cash Value of Your Vehicle

Most vehicle owners know that a brand new vehicle starts losing its value as soon as it leaves the dealership or seller lot. The Insurance Information Institute reports that the average vehicle loses about 20% of the initial sale value within the first year of ownership. To determine the value of a vehicle, analysts will look at other cars of the same make and model in the area and estimate the average price. Different factors like damage, age, options, and even the vehicle’s color may alter the value. One of the most common valuation systems used by car buyers and sellers is the Kelley Blue Book.

If a driver files an insurance claim and receives a much lower settlement offer than expected, the insurance claims adjuster will likely mention the “actual cash value” of the vehicle. The driver should be sure to ask how the adjuster arrived at the reported actual cash value. It’s also possible to do independent research to confirm the actual cash value as reported by an adjuster. The adjuster may have forgotten to add the value of special options or safety features your vehicle has that most others of the same make and model do not.

Possible Problems with Actual Cash Value

Since most vehicles lose value very quickly after purchase, the “actual cash value” of a vehicle can pose problems after an accident. If the car owner only made a small down payment, financed the vehicle over a period longer than 60 months, or purchased a vehicle that depreciates faster than average, an accident could leave the car owner with a remainder between what he or she still owes on the vehicle and the amount insurance covers.

Many car sellers, dealerships, and private auto insurance carriers offer Guaranteed Auto Protection (Gap) insurance that covers the “gap” between what a driver owes on a vehicle and the actual cash value of the vehicle at the time of the accident. Leasing a vehicle almost always requires gap insurance; this is mostly because the driver doesn’t actually own a leased vehicle and the leasing company will want some guarantee of the vehicle’s value for the duration of the lease.

In the event that the replacement cost of a damaged vehicle exceeds the actual cash value of the vehicle, the damaged vehicle is considered a total loss — or “totaled.” An auto insurance policy generally includes a disclaimer concerning a totaled vehicle and will stipulate how the insurance company will handle a total loss claim. Some insurers will cover the average price of an equivalent vehicle based on current market values while others may even guarantee to replace a totaled vehicle with a version that is one model year newer.

Drivers should carefully read policy terms before agreeing to a policy. If there are discrepancies concerning the actual cash value of a vehicle involved in an insurance claim, the driver can consult an attorney about the terms of his or her auto insurance policy and how to approach the claims process.