What’s the Difference?
Actual Cash Value of My Car vs. Replacement Cost
After you’re involved in an accident, your main concern is probably centered on getting your vehicle or property back to the condition it was in before the accident, or at least receive payment to cover damages. While that is also your insurance company’s goal, the methods that they use to decide how to ensure that you’re fairly compensated may be confusing. Keep reading to learn about the difference between actual cash value and replacement costs and what you can expect if your vehicle is damaged in an accident.
Replacement Costs
As you may have guessed, the term “replacement cost” refers to what it would cost to replace your damaged property with something that is similar in material and quality. For example, let’s say that your car is involved in a collision and your upgraded and very expensive sound system is damaged. If your insurance company paid the replacement cost for the sound system, you would receive the sum that it would cost to replace it with a similar system at retail price. It’s important you know how your policy is written.
Actual Cash Value
Actual cash value, on the other hand, has more to do with what your property is actually worth in today’s market. In other words, if you were selling that same sound system, what would a buyer be willing to pay for it? Sentimental value does not apply. Even if it was a best-in-class system when you bought it four years ago, in all likelihood, its fair market value would be less than what you paid for it at the time of purchase. It “depreciates”.
In most cases, if your vehicle is totaled in an accident, meaning that the cost of repair is greater than what the vehicle is worth, the settlement that you receive from your insurance company will reflect your car’s actual cash value. It may not be enough to replace your vehicle, but it will be a fair payment for your vehicle’s make, model, miles, options and condition ratings, minus your deductible.
