Knowledge they say is never wasted, and as a car owner, knowing the difference between actual cash value and replacement value might come in handy if you ever need to file for car value insurance claims.
Actual Cash Value and Replacement Value
Actual Cash Value
The actual cash value of a car is what the car’s worth at any point you want to sell it. To determine this value, a number of factors are put into consideration. These factors include the age of the car and the mileage on it, wear and tear, and any damage that might have occurred due to accidents of any sort amongst others.
In essence, what actual cash value means is the worth of your car on the market today less all the depreciation. With these in mind, it is easy to deduce that the actual cash value of a car wouldn’t be enough to get a comparable new one. What do you do then? Consider the replacement value
Simply put, the replacement value is the current cost of buying a new car that is similar to your own. In ascertaining this value, no depreciation is accounted for. In fact, in many cases, and sometimes on request, the insurance firm may also cover extra expenses like sales tax, title, and transfer fees amongst others. Thus, if you are looking to be completely covered in the event of a total loss of your car due to an accident, you must take out a policy on it that includes a replacement value in its contract clause. You should note however that the added premium is much more costly than that of the actual cash value. But then, isn’t it worth it?
Note: the actual cash value policy doesn’t always include taxes. In fact, in most states, it doesn’t. Also, there’s no way the actual cash value will ever amount to the price of a similar new car. This is because once a car is driven off the lot, it begins to depreciate, and depreciation increases the longer you use it. So, if you were to sell your car just within a week of buying it, you wouldn’t get the same price you used to buy it, except you’ve made some tangible upgrades to it.
Another reason to consider taking a replacement value policy over an actual value insurance policy is if you’ve taken out a loan on the car and you’ve not yet fully paid it out. In the event that the car is totaled and you only took out an actual value insurance policy, the insurance agency will only pay out the amount the car’s worth presently on the market. That amount might not be enough to set-off the loan you took out on the car, therefore, you’d be left with settling a loan of something you no longer possess.
Keep these in mind if you were ever to take out insurance on your car or trying to make car value insurance claims.