Joanna Szabo  |  November 2, 2020

Category: Insurance

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It's important to understand actual cash value when shopping for car insurance.

Consumers shopping for car insurance should consider whether the coverage they are purchasing is actual cash value or replacement cost.

Actual Cash Value vs Replacement Cost

According to CarChex, insurance companies prefer to offer “actual cash value” or ACV policies. ACV policies offer the value of the car in the event your car is in an accident or stolen and the insurance company declares it a total loss. Under replacement cost, or RCV policies, the insurance company provides the cost of replacing the vehicle that was damaged or stolen.

CarChex explains that depreciation can have a major effect on what a car is worth. According to CarChex, a new vehicle depreciates by as much as 11% as soon as it is driven off the car lot. Under a RCV policy, if that new car were to be totaled in an accident, the insured would still walk away with the value of a new car. However, ACV policies would pay out the value of the new car – minus the 11% depreciation.

Which Is Better, ACV or RCV Coverage?

The better auto insurance will depend on the consumer and what they want to pay. While RCV coverage provides more in the event of a car accident, The Zebra notes that this type of insurance is more expensive than policies that offer ACV. Indeed, most car insurance policies offer just ACV.

It is important to know what your auto insurance policy will cover, whether it is ACV or RCV.

What Should the Actual Cash Value of My Car Include?

Actual cash value, as calculated by most insurance companies, takes into account the depreciation of your vehicle over the years. For example, notes The Zebra, the insurance payout on a five-year-old car that is totaled in an accident would not be what the consumer paid for it five years ago; it would be the current value of the vehicle.

From state to state, there are different thresholds for determining whether a vehicle is considered a total loss. In some cases, the cost for repair may have to completely surpass the car’s value to be considered a total loss. However, most total loss thresholds are lower, so that if the cost of repair is between 70 and 75 percent of the car’s total value, it’s a total loss. Other states, such as Ohio, use the Total Loss Formula, where the vehicle is considered a total loss if the sum of the cost of repair plus the vehicle’s salvage value is more than the actual cash value.

An ACV insurance policy will consider a number of factors, including the make, model, and year of the vehicle, as well as mileage. The condition of the vehicle, including wear and tear, its interior, and tires will also be included when an insurance company calculates the actual cash value of a car.

While insurance companies have their own way of determining what they’re willing to pay in a total loss settlement, it’s generally a good idea for consumers to do their own research into their vehicle’s actual cash value to get a good ballpark estimate for what to expect. This can include using online tools and even the local classified section to help establish a base estimate for your vehicle.

In addition, the insurance company may be on the hook for other costs, like sales tax, title and vehicle registration, notes Insure.com.

It's important to understand actual cash value when shopping for car insurance.Does Actual Cash Value Include Sales Tax?

As noted above, ACV policies may include sales tax. Additionally, some states require that sales taxes and fees, as well as title and registration, are covered. According toCar And Driver, the sales tax required by each state will vary.

Indeed, the Office of the Insurance Commissioner in Washington State provides an outline of fees that should be prorated in a total loss insurance claim. These fees include filing fees, regional fees if they apply, a weight-based fee, and a license fee.

However, some insurance companies have allegedly failed to pay customers for sales tax, along with other fees.

Total Loss Insurance Lawsuits

Indeed, some major insurance companies have faced litigation over allegedly failing to include sales fees and other items in their total loss settlements.

Permanent General Assurance has faced a lawsuit alleging the company failed to properly payout total loss insurance claims. An Ohio plaintiff claimed that the company failed to include money for sales tax, title fees, and registration at the time of the loss. Her class action lawsuit accused Permanent General of violating both the terms of its own policy and Ohio state law.

GEICO also reportedly faced a lawsuit in Florida alleging the company refused to includes sales taxes and title transfer fees in total loss insurance claims as required under the state’s law. GEICO attempted to dodge the allegations by arguing that different rules applied to leased vehicle, but was shot down by the court.

State Farm is another major insurance company accused of shorting customers for total loss claims. A class action lawsuit accused the company of using old and inaccurate methods to determine the actual cash values of totaled vehicles that lead to much lower valuations for consumers and millions of dollars in profit for the company.

It is important to have an understanding of what your car insurance policy will cover in the event of an accident, be it ACV or RCV. If you think your total loss insurance claim does not include important fees, like sales tax, an attorney can help you get what you are owed.

If your insurer totaled your car sometime in the last five years, but you were not compensated for all of the associated taxes and fees as part of the settlement, you may be able to file or join a class action lawsuit and pursue compensation.

Filing a lawsuit can be a daunting prospect, so Top Class Actions has laid the groundwork for you by connecting you with an experienced attorney. Consulting an attorney can help you determine if you have a claim, navigate the complexities of litigation, and maximize your potential compensation.

Join a Free Total Loss Car Accident Class Action Lawsuit Investigation

If you were insured under an auto insurance policy, experienced a total loss car accident, and were not reimbursed for sales tax and other fees by your insurance company in the last 5 years, you may qualify to join a total loss car accident class action lawsuit investigation.

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One thought on What Is Actual Cash Value vs. Replacement Cost for Auto Insurance?

  1. Felicia R Reddick says:

    add me in MY insurance carrier is me emic inc

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