What is Actual Cash Value?

Question: “What is actual Cash Value?” 

What is the actual cash value of my car? We have all heard that as soon as you drive the car off the showroom floor, the value of the car drops, this change in value is called depreciation. The basic logic stems from the fact that people are willing to pay less for a “Used Car” or truck than they would for a band-new vehicle.

An insurance company realizes that they can purchase a two-year-old car for less than the cost of a new one; as a result they are willing to lower the cost of insurance relative to the value. It is important to remember that the purpose of insurance is “To make you whole,” not rich. Insurance companies seek to avoid any situation where an insured is “Better-Off” because they had an accident. To do such would be to create an incentive for policyholders to want to have losses, rather than to take prudent steps to reduce losses. The term Actual Cash Value is a form of insurance that pays damages equal to the replacement value of damaged property minus depreciation and the deductible. This term applies to Commercial Vehicles as well.

Click Here to return to Commercial Insurance FAQ

Skip to toolbar