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If your car is stolen or totaled, the payment you receive could depend on what the insurer says the actual cash value (ACV) of your vehicle is at the time. The ACV is often similar to the car's current market value, although companies use different formulas and systems for their calculations. If you think your insurance company's ACV and resulting payment are too low, you may be able to appeal the decision and potentially get a higher payout.
What Is the Actual Cash Value of My Car?
The actual cash value of a car is based on the car's current market value—in other words, how much you might be able to sell your car for today. However, the ACV might not include dealership fees or markups, so it could be lower than the current price of a similar used car that you buy from a dealer instead of a private party.
The ACV always includes depreciation, which describes how a car's value declines over time:
- Many new cars depreciate by up to 20% during the first year because some people prefer buying new cars, which may come with warranties and financing offers.
- Used cars continue to depreciate at different rates and for various reasons, including their mileage, wear and tear, maintenance history and the manufacturer's reputation.
If you get into an accident, an insurance company may determine that your car is totaled by comparing the cost of repairs to the ACV before the accident. States and insurance companies have different approaches to these calculations, but your car might be considered a total loss if the repairs are at least a specific percentage—such as 70% or 80%—of the car's ACV.
The ACV could also determine how much your insurance company will pay if your car is totaled, assuming you have comprehensive or collision insurance that covers the incident. Even if your car is only a few weeks old, you likely won't receive enough to replace your car with a brand-new car that's the same make and model.
Actual Cash Value vs. Replacement Cost
Many insurance policies use either replacement cost or actual cash value to determine how much they pay after a covered incident.
- Replacement cost: The full cost to replace your car with a similar, brand-new car.
- Actual cash value: The replacement cost of the car minus depreciation.
ACV is more common with auto policies, and replacement cost coverage will likely be more expensive, if it's offered at all. In contrast, renters and homeowners insurance commonly offer replacement cost coverage.
With your auto policy, the payment you receive based on the ACV could be enough to replace your car with a very similar used car. But finding that used car could be difficult. You may be stuck deciding whether you should buy a different used car or paying more to purchase a new car.
You also might owe more on your auto loan than the car's ACV, especially if it's a relatively new car. You're still responsible for repaying the entire loan when this happens. If you're worried about that expense, gap insurance could help cover that difference.
Additionally, if you buy a new car, some insurance companies offer optional new car replacement coverage. The specifics vary, but the insurance could pay to replace your new car with another new car if your car is totaled or stolen during a limited initial period.
Learn more >> Replacement Cost vs. Actual Cash Value
How Do Insurance Companies Determine Actual Cash Value?
Insurance companies may take slightly different approaches to calculating the ACV of your car, but many will consider similar factors:
- Comparison sales: This is the recent sales price of similar cars. Ideally the cars were sold in your area and are the same make, model and trim. The company may expand some of the criteria if there aren't any recent comps available.
- Third-party tools and data: Insurance companies might pay vendors for estimation tools and data to help them determine the ACV of a car.
- Adjustments: The insurance company might make adjustments based on specifics for your car, such as its mileage, condition, features and upgrades.
- Remaining value: You might also receive compensation for your car's salvage value after the accident.
After a total loss, your auto insurance may assign an adjuster to oversee your claim. It may also hire a third-party appraiser and use the appraiser's ACV alongside their estimates to determine the payout amount.
If you agree with the amount, the insurance company might write you a check or pay your lender. In some states, the company will additionally need to pay the required taxes and fees if you use the money to buy a new car.
Learn more >> Steps to Take After a Car Accident
How to Negotiate Your Car's Actual Cash Value
If you disagree with the insurance company's offer, you may be able to negotiate the ACV and payment amount. Here are a few steps you can take:
- Request a detailed report. Closely look over the report to make sure there aren't any mistakes and that the company used good comparison sales to reach their estimate.
- Look for missing adjustments. Note anything the insurance company missed that could increase your car's value, such as brand-new tires or an aftermarket sound system. If you regularly took your car in for oil changes and maintenance, that also might increase its value.
- Find your own comps. See if you can find comparison sales—not listings—that better align with your car's condition before the crash.
- Hire an appraiser. If you think the ACV is significantly off, you may want to hire an appraiser to see if they think your car is worth more than what the insurance company claims.
You can dispute the offer if you think your car's fair market value is higher than what the insurance company wants to pay.
The dispute process can depend on your state and the company—ask about the process early so you know what to expect and when you need to start. Be prepared to show evidence, such as copies of recent car sales, pictures of your car from before the crash and receipts for maintenance or upgrades.
If the insurance company doesn't agree to change the payment, you may have the "right to appraisal," which could help you resolve the issue without going to court.
Both parties (the insured and insurance company) pay for independent appraisers who try to come to an agreement on an ACV. If appraisers can't come to an agreement, an umpire might be selected to make a final decision.
When these steps don't result in an agreeable outcome, you may want to hire an attorney to review your case.
Learn more >> How to Lower Your Car Insurance Costs
The Bottom Line
Insurance companies generally use your car's ACV to determine whether it's a total loss after an accident. If you have comprehensive or collision coverage, most auto insurance policies will also largely base your payment on the car's ACV after it's totaled or stolen.
Disputing the results doesn't always make sense. Remember, the ACV should be approximately how much you could sell the car for in a private sale, not how much it would cost to purchase a similar new car. But you could try disputing the results if you think the ACV is too low.