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Car ride in convertibleIf you've ever taken a close look at your auto insurance policy, you may have noticed the term actual cash value. It’s on the declarations page, usually next to "Collision" or "Other Than Collision," if you opted to add these coverages to your policy.

Actual cash value is a term you've probably taken for granted because you've seen it so many times. But the phrase may never seem relevant to you until you have a car accident and the damage appraiser lists the repairs as calculated based on ACV.

The Concept of ACV

If you are in a car accident and you own a new car, the insurance company may owe you new parts plus payment for the labor it takes to complete the repairs. If your car is an older model, in theory they owe labor plus parts that have the same degree of wear and tear as those that were damaged.  

If insurance companies paid for new parts to repair old cars, they would make insured's better off than they were before an accident. That sort of enrichment could encourage fraud. So instead of giving new parts for old, they pay claims based on ACV.

Calculating Actual Cash Value

Paying a claim based on ACV could mean repairing your car with used parts, assuming they are available. But even if an auto appraiser could find parts identical to the ones that were damaged in your older car, you might not want them. So the insurance company usually calculates repairs based on new parts, deducts an amount for depreciation and then pays the claim.

For example:

Replacement cost of parts: $500
Minus depreciation (due to age/wear and tear): $150
Equals actual cash value: $350

Can You Avoid Depreciation?

As an insured, you should be familiar with the concept of actual cash value. But even if you understand ACV, if your car is in an accident you probably won’t like having depreciation deducted from the claim payment.

To avoid the problems that depreciation can cause, some insurance companies will add a replacement cost coverage endorsement to your policy. The endorsement allows certain auto claims to be paid without deducting depreciation. 

We’ll help you understand the details of your policy. Call Rosier Insurance at (239) 444-1414 for more information on Bonita Springs auto insurance.
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