What’s the Difference Between “actual cash value” and “replacement cost”

By the Farnsworth Agency

One of the most common car insurance questions among drivers who have car insurance is what’s the difference between actual cash value and replacement cost?

In this article, we will break down this question and provide you with insight into what both actual cash value and replacement cost really mean.

Actual Cash Value Vs. Replacement Cost

Replacement Cost

If you buy a new vehicle, the value of the car drops as soon as you drive it off the lot. In fact, new cars can lose up to 11% of their value upon purchase. If the vehicle is stolen, replacement cost insurance will reimburse you for 100% of the value of a new car.

This level of insurance is not included in every policy and may not be available by all insurers. Opting for replacement cost car insurance will also increase your monthly premium.

Actual Cash Value

The traditional insurance definition of actual cash value is the cost of a new or similar replacement item, minus depreciation. What’s depreciation? Remember the value your car lost driving it off the lot? That’s how much a new car depreciates when it’s purchased. Nearly all vehicles (except exotic collector models) depreciate over time.

Another way to look at actual cash value is to consider how much your car would have sold for in the used car market. For this reason, the actual cash value is also referred to as the “fair market value.”

Actual cash value is pretty much the standard level of coverage that comes with comprehensive car insurance. Like replacement cost insurance, comprehensive car insurance is optional insurance and will increase your monthly premium.

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For affordable car insurance contact, the Farnsworth Agency today by calling us at (541) 318-8835 or click here to connect with us online.