Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: May 11, 2022

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Insurance Q&A: “How is actual cash value determined?”

Sadly, at some time or another, we’ve all heard the phrase, “My car got totaled.”

Typically, this conjures a picture in our heads of a car so badly damaged that there is no way it could possibly be repaired.

We’ve also heard stories where a vehicle “should have been totaled,” but was miraculously repaired.

This article aims to explain how an insurance company makes that determination.

As you may have guessed, it comes down to limiting the expense to the insurance company, thereby allowing them to keep car insurance rates as low as possible.

How the Insurance Company Determines Actual Cash Value (ACV)

The meaning of ACV for cars refers to the cost of repairing or replacing a car that has been destroyed or damaged in an accident or stolen; minus depreciation. In the event of a covered physical damage claim, your insurance company must pay either the “actual cash value” (ACV), the expense to repair your vehicle or replace it with a vehicle of like kind and quality.

Ultimately, whichever loss cost settlement option was detailed in your auto insurance policy when it was purchased.

It’s important to note that your insurer will calculate the ACV of your vehicle as to the replacement cost minus any depreciation or obsolescence.

In the event the cost to repair your vehicle exceeds the ACV, your car may be deemed a total loss, or “totaled.”

In this event, you receive the ACV minus any deductible that applies.

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Actual Cash Value Examples

Example 1: Tim crashes his car into a telephone pole, bending the vehicle’s frame and smashing the engine compartment, destroying the entire front end.

Let’s assume Tim has physical damage coverage with a $1,000 deductible and the ACV of the vehicle is $35,000.

The cost to repair the vehicle is $37,000.

In this instance, Tim’s insurance company would consider the car a total loss because repairs cost more than the ACV, and Tim would be paid $35,000 minus his $1,000 deductible.

If Tim happened to be leasing the car, and the ACV exceeded the current payoff amount of the vehicle, he would keep the difference.

So if the payoff amount on the lease were only $30,000, but the insurance company valued the vehicle at $35,000, Tim would keep the additional $5,000 less the $1,000 deductible.

Tim winds up with a $4,000 check, not bad assuming no one was hurt in the process.

Example 2: Rita backs into a dumpster at a grocery store while parking her car, damaging her bumper and tail light.

Let’s assume Rita has physical damage coverage with a $250 deductible and the ACV of the vehicle is $7,500.

The cost to replace the bumper and repair the tail light is $950.

The cost to repair Rita’s car would be shared by Rita and the insurance company.

Rita would have to pay her $250 deductible, and her insurer would pay the remaining $700.