What Is the Actual Cash Value of My Car & How Does It Work?

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Updated: May 20, 2024

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Actual cash value (ACV) is a term used to describe the amount an insurance company will pay to repair or replace an insured property, which can be a home or vehicle.

ACV is different from replacement cost. If an auto insurance company pays for replacement costs, it will reimburse the policyholder for 100% of the value of a new car.

Auto insurance companies use ACV to estimate the value of a vehicle on the market. To calculate the ACV of a car, insurers take the amount paid to purchase the car and subtract depreciation.

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Key Takeaways

ACV is the estimated cost of a vehicle on the market. It is the amount an insurer will pay if the car is totaled.

ACV is not to be confused with replacement cost, which represents 100% of the cost of a new car.

ACV is calculated by subtracting depreciation from the original purchase amount. It considers mileage, make, year, model, interior, exterior and location.

What Is Actual Cash Value?

Actual cash value for auto insurers is the market price of an insured vehicle and the amount they will pay if the car is totaled.

Insurance companies calculate the value of a totaled car differently. That said, insurers typically use the amount the car owner paid to purchase the vehicle minus depreciation. That means the ACV of your car is less than the amount you spent when you bought it.

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Insurance companies use ACV to determine how much to reimburse a policyholder if their car is totaled. To be considered totaled, a vehicle must be damaged beyond repair. Insurers consider damages to be a total loss if the cost for repair is more than the amount necessary to replace it.

ACV should not be confused with replacement cost. Replacement cost is when a covered car is replaced with a new one after a total loss. Replacement cost coverage typically comes with more expensive premiums than ACV policies.

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Replacement cost is the cost to replace an insured property with something similar. For instance, you have replacement cost coverage, and your car gets damaged in a covered incident. If the insurance company categorizes it as a total loss, they will pay you the cost of buying a new car.

How Does Actual Cash Value Work?

ACV is often used by auto insurance providers when a covered car is totaled. It is an important factor to consider when shopping around for an auto insurance policy.

Knowing what the ACV of your car is can help you determine how much car insurance you really need. If your insurance policy costs more than your car’s ACV, you might want to reconsider.

You may also refer to the 10% rule. If the annual cost of your policy is more than 10% of the cash value of your car, then you may opt not to have full coverage.

What Is the Actual Cash Value of My Vehicle?

While insurance companies may have different methods to calculate ACV, it is often affected by a combination of the below factors. The specific factors considered when calculating the actual cash value of your car may vary per insurance provider.


Mileage is one of the main causes of depreciation. The number of miles driven is recorded on your car’s odometer. High mileage indicates wear and tear. The more you drive, the more mileage your car will have.


ACV may vary widely depending on the make of your car. Some car makes depreciate faster than others. For instance, the average five-year depreciation rate is 9.2% for a Jeep Wrangler and 65.1% for a Nissan Leaf.


The age of a car will impact its ACV. Generally, the older the car is, the cheaper it gets. This rule does not apply to classic cars as they are treated as a special case.


Some models are more expensive than others. To get a more accurate ACV, certain features, such as the car’s color, should also be disclosed.

Interior and exterior

The ACV of a well-cared-for car may be more than a car with a dent. Even a stain can lower a car’s value.


Some places value cars more than others. There are also location-specific conditions, such as local demand, to consider.

Whether your vehicle is new or not, knowing about ACV is essential. This is especially true when you’re shopping for car insurance.

New car insurance is different from a policy for older vehicles. Insurance companies consider the car’s ACV when calculating car insurance costs. Insurers take on more risk when covering higher-value vehicles and charge higher premiums for those cars.

How to Compute the Actual Cash Value of My Car

The basic formula to compute the ACV of your car is to subtract depreciation from the original purchase amount. However, determining depreciation can be a bit challenging. There are actual cash value calculators for cars like Kelley Blue Book’s online tool.

How to Get More Out of Your Claim

While ACV determines the amount a policyholder may receive after a total loss, there are ways to get more than the ACV of the car. Generally, your claim amount depends on the type of policy you have. Obtaining additional coverage can help you get more out of your claim.

New Car Replacement vs. Actual Cash Value

Policyholders may opt for new car replacement insurance. Your insurance provider will pay you enough to get the same make and model as your totaled car with this coverage. Your claim payout is more than your car’s ACV minus your deductible.

You can only get new car replacement coverage during a certain time window after buying a new vehicle. This coverage is best for new and luxury cars.

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New car replacement insurance only typically applies to newly-purchased cars and pays for the cost of buying a similar make and model in the event of total loss.

GAP Insurance vs. Actual Cash Value

Another coverage to note is GAP insurance or Guaranteed Asset Protection. It is a coverage option for loaned or leased cars that pays for the difference between the balance the policyholder owes and the car’s ACV.

GAP applies when the insurance claim payout is not enough to cover the balance for the amount the policyholder borrowed to finance their car. It is calculated at the time of loss.

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GAP insurance is an extra coverage option available for loaned and leased cars. It covers the difference between the remaining amount you owe and the ACV of your car.

Frequently Asked Questions About Actual Cash Value

The ACV of your car can affect the cost of your insurance. That is because insurance companies typically use ACV to determine how much to pay a policyholder in the event of total loss. MoneyGeek answers some frequently asked questions to help you better understand ACV.

What is ACV?
How does insurance calculate the value of my car?
Does insurance pay the market price?
What is a total loss?
How do I compute ACV?

About Mark Fitzpatrick

Mark Fitzpatrick headshot

Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.