If you own a car, you have car insurance to cover you and your vehicle.
Often the general thought is that insurance companies will pay out based on your idea or loan amount for the vehicle’s value, but there are multiple ways that insurance companies value vehicles. The three most common valuations are: actual cash value (ACV), stated value and guaranteed value. Depending on your policy and coverages, this distinction can drastically change any potential claim payout
ACV is the most common valuation and is used on most standard auto policies. It is the replacement cost of the vehicle minus any depreciation based on many factors. Miles driven, condition of the vehicle, and market rates are some of the most common.
Stated value is less commonly used and does afford you the option to list the value you believe the car is worth. While this value is stated, it is not the definitive value. The insurance company does have the option to pay out on an ACV basis, though your valuation is considered.
Guaranteed value policies offer the highest amount of protection, as the value of the vehicle is agreed by you and your insurance company at the time of inception and is the amount paid out in the event of a total loss. Guaranteed value is often utilized for more high-end luxury cars or collector vehicles, where values generally increase with age.
With any new vehicle, depreciation almost always occurs. One way to safeguard this on an ACV policy is to always review for Replacement endorsements which assist in paying out higher amounts to offset depreciation or to cover auto loans. Loan/lease, often referred to as GAP coverage, is also highly recommended with any leased or purchased vehicle. Any time you are in the market for a new vehicle, reviewing options before buying is highly recommended to safeguard your new purchase!
Article by James (Matt) Dailey, Agent and Manager at Kinneman Insurance