Actual Cash Value or ACV is a term present in 99% of the auto insurance policies in America. This term is usually defined in the Definitions Section of the policy. Some policies define it in every single section where the term appears; if this is the case, this definition applies only to that specific section of the policy.
Actual Cash Value is deceiving because insurance agents do not explain exactly what it means. On the surface, Actual Cash Value appears to include all damages that you had the day of the accident. For example, if there are damages to your car, it would appear that you will get paid to get the car fixed as you want it. The word “cash” makes it appear as if the payment will be quick and without hassle.
However, Actual Cash Value is usually defined as follows:
The value to fix or repair damaged property. If the property is destroyed, the value of such property mines its depreciation at the instant before its destruction.
Issues with ACV:
As noted above, I believe this term is not explained correctly to consumers. I believe people will get other coverage or at least know what to expect in case of an accident.
The problem however with this type of clause is not only the fact that it is poorly explained to consumers, but the fact that there is no one settled way to calculate such value. Some insurance professionals will debate me over this and will argue that ACV is the value of the item (new) minus its deprecation or the Fair Market Price.
This definition or “formula” does not take into account factors like: “what happens when there is no market for your item (i.e. replacement part or vehicle).” There will not be an “actual” value because the part does not actually exits.
The definition also does not include your time and hassle to find what you need. The purpose of insurance is to put you back in the situation you were prior the accident. However, your time will not be compensated. Insurance companies will argue that your time is not part of the item (car), therefore they do not owe it.
Also, Actual Cash Value seems to only pay for the item itself. In many occasions, insurance companies will only pay you for the cost of the item as they believe it is worth. However, in many occasions they will not pay you for the installation cost. This is usually the case with stereo equipment. Insurance companies owe for the installation, make sure you ad this cost to your claim. Installation cost is not subject to depreciation.
In addition, the calculation of “actual” cash value is very subjective as consumers and insurance companies will be looking at market trends and appraisals.
A common problem occurs with the parts used to repair your car after an accident. The insurance company will argue that the parts in your car are not “new” unless your car is really new. Therefore, they will depreciate your parts and only pay a faction. If you want new parts to repair your car, you will have to pay for the difference.
Insurance carriers use depreciation tables for common times. Stereo systems are a common area where insurance companies will use the Actual Cash Value clause to lower the amount they have to pay under the policy.
Electronic equipment (i.e. stereo system) is depreciated sometimes at a rate of 33% per year. This means that your equipment would be worth nothing in 36 months! The insurance company will figure out the age of your car (i.e. two years old) and subtract 66% from the value of your stereo (new), take a deductible and they paid that.
For example, a $1,000 stereo system will be depreciated as follows (two year old stereo).
$1,000 x .66% = $660 (the depreciation value). So, the carrier will take $1,000 (original cost new) and subtract $660 to arrive to $440 (they will not pay you anything if your deductible is above that amount). If your deductible is less than $440 (i.e. $250). They will take the $440 – $250, which equals $190. You would get paid $190 in a $1,000 loss (remember to ad the value of the installation).
