Automobiles
With so many insurance companies offering coverage, it can be difficult to know all the right questions to ask.
Actual Cash Value, Replacement Cost, and Agreed Value
You've probably heard about Actual Cash Value (ACV) or Market Value as a method for valuating your vehicle in the event of a total loss. Two other valuation methods are Replacement Cost and Agreed Value.
Actual Cash Value (ACV) represents the amount equal to the replacement cost minus depreciation at the time of the loss. Depreciation includes factors like wear and tear, mileage, maintenance, etc.
Replacement Cost will compensate you enough money to replace your vehicle after an accident. If your vehicle has an ACV of $15,000, for example, but it would cost $20,000 to buy the same vehicle, the insurer will pay the $20,000.
Agreed Value is a payment basis wherein you and the insurance company agree on the value of your vehicle ahead of time and the amount is listed on your declaration page or agreed value endorsement.
Caveat #1: Many carriers who offer Agreed Value coverage will pay either the Agreed Value or the Actual Cash Value at the time of loss, whichever is higher. You might think Agreed Value will be higher than ACV but that is not always the case. For example, when the Prius and the Tesla were first released, the demand for the vehicles pushed the secondary market valuation much higher than the original cost new from the manufacturer (which is often set as the Agreed Value).
Caveat #2: Some carriers offer New Car Replacement Cost. This will most often be available on brand new cars in the current model year. The coverage is usually provided for the first term after the vehicle was purchased, provided the vehicle was purchased from an authorized dealer and is the first owner of the vehicle. In the event of a total loss to the vehicle, the insurer will pay no less than the sticker price of the original vehicle or replace the vehicle with the newest model year of the same type and class of vehicle that was destroyed.
