How it works
Insurers generally start from what it would cost to replace the property and subtract depreciation for age and wear and tear. For a car, that usually lands close to the local market price of a similar vehicle. The California Department of Insurance says that, unless a policy defines it differently, actual cash value in that state means fair market value.
Example: a car like yours sells for about $12,000 in your area and your deductible is $500. If the car is totaled, the insurer would pay about $11,500, and any loan balance is paid from that amount first.
ACV is different from replacement cost, which pays for new property of like kind without a deduction for wear. It is also different from agreed value, a figure set in advance and used mainly for collector cars. If you owe more on the car than its ACV, gap insurance is designed to cover the difference.
Related terms
Sources
- NAIC, Glossary of Insurance Terms actual cash value as replacement cost minus depreciation; replacement cost
- California Department of Insurance, Automobile Insurance Terms ACV means fair market value unless the policy defines it otherwise
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