r/Insurance • u/aries_burner_809 • 11h ago
Auto Insurance What does ACV mean?
My car is totaled. Could someone explain if ACV is intended to be what I need to pay retail to buy the same car year and mileage, or what I would have gotten in trade at a dealer, or somewhere in between? If it isn’t the retail price, how is that making me whole if I just want to be where I was before I got rear ended (by the other driver, and maybe now again by insurance!)
Edit: thanks! you can see by the answers I’m not the only one whose confused. I’m not asking for more or less than exactly what I had 10 seconds before the accident. Dealers must make a profit and offer sellers a hassle-free instant credit at less than retail towards another car. A seller to a private buyer endures a hassle and risk, and so expects more cash than a dealer will offer. I’m not a dealer so I can’t command the hassle-free price and I have to pay more from a private seller or a dealer at retail to be made whole. I understand my insurance may not do this, but I think there is a solid legal argument that the at-fault driver should make up the difference to get me back where I was in a separate suit.
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u/yapyoba 8h ago
the reason why insurers cover actual cash value is because to do otherwise would break the principle of indemnification. the purpose is to leave you in the same financial position as you were in before the loss. ie. no better off and no worse off net-worth wise.
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u/abn1304 22m ago
Which really feels like a “well actually” way to get around the fact that most people who face a total loss are going to be in a far worse financial position if they’re paid what insurance considers the “actual cash value”, which itself is a misleading term because it implies market price. Between sales tax on the total loss payment and the costs involved with wrapping up a car loan, especially an underwater one, ACV rarely actually results in a net-worth break-even. In the case of an underwater loan it can be financially ruinous because most Americans don’t have the savings to just pay the difference and won’t be able to afford another car with an outstanding loan. Is it the insurance companies’ fault that so many Americans are in that position? No, but it is reality, and policy that’s not grounded in the real world quickly becomes untenable. Enough people feel like they’ve been screwed over and eventually legislation will change or courts will start changing their minds.
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u/ChutneyWhatney 11h ago
Means actual cash value minus any depreciation. Does NOT represent the current retail price of the same vehicle.
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u/Standy25 9h ago
It essentially means you get the value of the current car. They won’t pay you the amount for a new car.
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u/MikeTheActuary 10h ago
ACV = actual cash value; value net of depreciation. It's a notional figure of what you would get if you sold the item as-is on the open market.
RCV = replacement cost value; what it would cost to replace the item. Consider your house, particularly if it isn't recently renovated and maintained in pristine condition. If it burns down today, the cost to rebuild it will likely be different (probably more) than what you'd have gotten if it had been sold as-is on the open market immediately prior to its burning.
Overgeneralizing, consumers generally prefer RCV, because if they have a total loss, they usually want the thing replaced. However, generally RCV is more expensive to provide (and that will be factored into the price), and insurers have to recognize the increased risk of fraud -- e.g. if your house is in pretty rough condition, you might be tempted to turn a profit by burning it down, letting the insurer rebuild it with something better, and then selling the house for profit.
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u/TribalMog 10h ago
OP was specifically asking about ACV with regards to vehicle coverage so it's also important to note that most carriers do not offer RCV on auto policies - outside of like a "new car replacement" type endorsement (I.e. if you buy a brand new vehicle, if it is totaled within x number of months (12-36 tends to be the most common I see) they will pay the actual replacement cost. Once it ages beyond that, it's ACV).
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u/jenntasticxx 8h ago
Yeah I've never seen a replacement cost on an auto. We do ACV or stated value (commercial insurance, customizations to vehicles are usually better covered under stated value). I've never seen anything but ACV for a regular personal vehicle.
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u/sirlost33 10h ago
That would be what gap insurance or an additional value rider would be for on your policy. Some companies you can select for an additional percentage over acv.
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u/MattL-PA 8h ago
GAP insurance is of no benefit to someone without a loan AND negative equity secured by the damaged property. GAP has nothing to with how ACV is determined.
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u/Choppergunner58 10h ago
Well your car doesn’t stay new forever. It depreciates in value.
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u/aries_burner_809 6h ago
That’s not at all what I asked is it. I said replace with the same make, model, year, mileage. ACV won’t quite do that.
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u/Choppergunner58 5h ago
Hate to tell you this but that’s not going to happen, and accepting the settlement means you can’t go after the driver in a separate suit.
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u/Choice-Newspaper3603 10h ago
You can’t spend two seconds doing a google search?
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u/aries_burner_809 6h ago
Dude if you are going to go there you’d shut down all of Reddit. And you can see here that it isn’t well defined and there is confusion.
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u/Bitter-hvacbro-88 11h ago
Usually insurance in my area does a comparable of recent sales within X miles of your address of the same make, model, year and mileage as close to yours as possible. If you overpaid then you are SOL.
I would get a lawyer and seek medical compensation. Getting rear ended causes extremw whiplash, I bet your neck and back is hurting.
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u/crash866 11h ago
ACV is actual cash value. This is what vehicles actually sell for not what they are listed for. This does not include and dealer prep fees, detailing, lube, oil, filter etc which may be done before you buy a vehicle off the lot.
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u/sephiroth3650 11h ago
ACV is actual cash value. The technical definition is replacement cost minus depreciation. It's not retail price. It's not the price you would pay if you walked into a dealership and tried to buy a similar car. It's what your car was worth. It's not exactly this, but it's a lot closer to what the dealership would have paid you to buy the car from you.
You're entitled to the value of the property that you had.
If you want to be compensated the replacement cost, you have to use your own collision coverage. And you would have had to pay extra for a replacement cost endorsement (sometimes called new car replacement).