How the Actual Cash Value is Calculated
Actual Cash Value, also known as "ACV", has a number of meanings. Car dealers often use the term "ACV" to note the value of a customer's trade in. It is also used to determine the value of property for insurance purposes. Actual cash value is most commonly used to refer to the value of a damaged vehicle, to determine if it will be totalled out or repaired.
Insurance adjusters will weigh the actual cash value against the damage repair estimate to determine if it is worth being fixed. But how does the insurance adjuster come up with this figure? The truth is there is no universal method used to determine the actual cash value. Many states have different laws relating to actual cash value and what its definition is. Below are the most common ways the actual cash value is calculated:
Insurance companies will check the book value of the damaged vehicle to determine the actual cash value. The most common values used come from Kelley Blue Book, NADA and Black Book.
Fair Market Value
Fair market value is difficult to define. Fair market value is usually used in conjunction with the blue book value. It is not uncommon for insurance companies to receive price quotes for the wholesale or retail value of a vehicle from auto dealers. Depending on the current market conditions, fair market value may be more or less than the book value. The insurance company will usually use this to their advantage.
Replacement cost is usually reserved for special situations, like with an almost new vehicle. In some cases, vehicles will not be assigned a book value or market value, especially with new models. While the vehicles usually become valued in appraisal books within 12 months, the replacement cost factor is used when another value is unavailable. Replacement cost is based upon the replacement price of a new vehicle, minus a set amount of depreciation.
Check your specific state laws if you feel your insurance company is not being fair on their calculation of the actual cash value. Some states have added protections from consumers and consumer-friendly interpretations of insurance terms.