Updated July 12, 2021|5 min read
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If your car is totaled in an accident, meaning the cost to fix it is more than a certain percentage of the car’s value, then your insurance company will pay out the actual cash value, or ACV, of your car.
That means that (assuming you have comprehensive and collision coverage, which cover damage to your vehicle) you’ll be paid the value of your car before the collision that totaled it, minus whatever deductible you owe. But how do insurance companies decide on the value of your vehicle?
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The answer is that most insurance companies use industry formulas to calculate your car’s ACV, so it can be difficult to predict how a car insurance provider will determine your vehicle’s pre-collision value. But if you feel your insurer has undervalued your car after it was totaled and you’re owed more than they’re offering, you may be able to dispute the ACV they came up with.
If your car is a total loss after an accident, your insurance company will pay out the car’s ACV, or actual cash value
Insurance companies typically aren’t transparent about how exactly they calculate ACV, but it’s based on a combination of factors
If you think your insurance company’s valuation is too low, you may be able to dispute their offer by finding comparable cars for sale in your area
The ACV, or actual cash value of your car is the amount your car insurance provider will pay you after it’s stolen or totaled in an accident. Your car’s ACV is its pre-collision value as determined by your car insurance company, minus whatever deductible you are required to pay for your comp or collision coverage.
Because your insurer will take into account usage, past accidents and general wear and tear to your vehicle, the ACV they come up with may be hundreds, or even thousands of dollars less than you paid for your car. Even if you’re a meticulous owner who’s taken great care of your vehicle, cars depreciate in value the moment you drive them off the lot, so that depreciation will be taken into consideration too.
And if your car is just a few months old and barely has any mileage when it’s totaled, the ACV will still likely be much lower than what you paid, since it is no longer brand new. That’s why some drivers choose to invest in additional coverage in the event their car is totaled.
Most car insurance companies use industry formulas to calculate car ACVs, meaning it’s hard to predict exactly what number they’ll come up with after your car is totaled. It’s not as simple as just looking up your car’s Kelley Blue Book value. As we mentioned above, your insurer will take into account your car’s age, mileage, any past claims you’ve made and the effect of months or years of normal wear and tear on your vehicle.
They’ll also likely look at comparable vehicles for sale in your area with the same make, model and specifics as your car to get a sense of how much your car would have been worth on the market before it was totaled or stolen. Your insurer may even share those comps with you when paying out your claim.
It’s possible that the ACV your car insurance company comes up with is around exactly what you think your car was worth — or you may even be paid out more than you expected, which is always a good surprise. But if the ACV your insurer determines for your car is lower than what you believe your vehicle was worth before it was totaled, you do have some room to dispute their valuation.
If the ACV your insurance company comes up with after your car is totaled seems too low to you, you have the option of disputing their offer. To do this successfully, you’ll need to show that your car would have been worth more at fair market value than they’re offering to pay you. Search for cars for sale in your area that are as similar to yours as possible — not just the same make and model but the same mileage, wear and tear, accident history and other specs.
To lend your research more credibility, look for cars for sale at dealerships, not through online marketplaces like Craigslist or Facebook. You should also look up your car’s value through Kelley Blue Book, an independent car valuation company. Compile examples that show your car would be worth more than what your insurer is offering to pay and present them to your insurer.
Remember, an ounce of prevention is worth a pound of cure — if you’ve had your car for a few years, you may want to take it to a dealership and get it professionally appraised. Knowing the current value of your car is always a good thing, and in the unlikely event that your car is totaled, you’ll already have a record of how much it was recently worth.
Gap insurance and new car replacement coverage are both additional coverage options that can help you if your vehicle is totaled. The cost to add each to your policy varies, gap insurance is typically inexpensive while new car replacement coverage can be pricier, and may add around $120 extra per year to your policy.
Gap insurance: If your car is totaled but you are still making loan payments on it, or you have a lease that isn’t up yet, you’ll still have to keep making those payments even though you no longer have the car. That’s where gap insurance comes in: it will pay off the gap between the ACV of your vehicle and the amount you still have left to pay on your loan or lease. If you have a car loan or lease a vehicle, you may already be required to have gap insurance.
New car replacement coverage: This coverage is usually only available for vehicles if you’re the first owner and it’s less than a year or two old (the specifics will depend on the car insurance provider). New car replacement will ensure that, if your car is totaled, you’ll be paid out more than the ACV of the vehicle — you’ll be offered enough to replace your totaled car with a new car of an identical or equal make and model.
When calculating your rates, car insurance companies take a number of factors into consideration, including your age, driving history, the make and model of your car, and your location. If you live in a densely populated city or an area with high rates of car theft, insurance companies will charge you more because of the increased risk.
The difference is that replacement cost pays for the full cost of replacing your car with a similar model, whereas actual cash value pays you the value of your car, minus age and depreciation. If your car is damaged by a covered peril, your comprehensive and collision coverage will pay for your car up to its actual cash value unless you’ve added new car replacement coverage to your policy.
No, your insurance company will not declare your car to be totaled just because you ask them. Insurance companies will typically declare a car a total loss if the cost to repair it exceeds the car’s value. But some states have what’s called a “total loss threshold” where a car is deemed a total loss if the cost to repair it is more than a percentage of its value.
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