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Replacement Cost Vs. Actual Cash Value (if your car is totaled)

 

Actual Cash Value

Say you spent $30,000 on a new car recently and then totaled the car in an accident 4 months later. Actual Cash value of your car may not be $30,000 minus depreciation. Many car insurance policies sold today would pay you Actual Cash Value (ACV). Actual Cash Value is the replacement value less depreciation. ACV is most impacted by rapid depreciation, like new cars when you drive them off the lot, or cars with expensive modifications. Even collector cars where there has been no official appraisal done can have a low ACV. Modifications won't add much to the value of car, no matter how you view them. And if the adjuster was new, they might not assign any additional ACV to a car that was one of a kind, unusual, or a limited production model.

Replacement cost

The current amount that must be paid to buy a car of the same value as a replacement if it's no longer operational or worth fixing. True replacement costs are not concerned with what was paid for the original asset, but what would be required to replace that asset at today’s market value.

Loan Balance

The loan balance is not related to the vehicle, so make sure you have gap coverage. Since your outstanding loan balance is not vehicle damage, and so it's not relevant to the value of the vehicle.

Policy Limits

An at fault driver's insurance carrier is not responsible for more than the cost of the property damaged or the limits on the insurance policy. The insure will not offer excess coverage beyond the value of the damage or his coverage, whichever is lower.

What to do

If you have a lower value car, replacement car coverage may not be worth it because Once the repairs get to the 70% of the car's value, they carrier will almost always total it. Any airbag, transmission or engine replacement is very expensive and you will probably end up signing over the car. After they request the title and sell it an auction, they will recover some of their money.

Tips to get as much as possible

Find out the fair market value of the car (including modifications). Insurance companies are known for making incredibly low offers with the promise of a quick check. Never agree to the 1st offer, unless it's very high, or you've done your research. Refuse the insurance adjusters multiple lowball offers until you get it whatever your policy specifies. Just ask for a higher up each time so you can get approval to go higher..

Often the insurance company will also pay you more for signing a non injury statement. Just make sure you were in fact not injured! If you have a newly purchased, rare or collector car consider paying more for "Replacement Cost Coverage"

If you are just not getting a satisfactory offer from the adjuster, dispute their settlement number by hiring your own independent appraiser. Then elect arbitration according to the insurance policy. It cost around $500 to arbitrate with the insurance company. There's never any guarantees, with any litigation. The referee in the arbitration may not get you what you want. He may 'split the difference" between what you what the insurance company offered. if you have a weak case, you wont' want to spend $500 to o to arbitration.

BTW, you can ask for written ruling and how the ref arrived at his conclusions.

Written by Craig J. Casey

Financial Writer helping people with their insurance problems on the net since 1998.

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