You may have asked yourself “what do I get paid for my vehicle in the event of a total loss?”. The answer depends on the coverage you selected when originally securing coverage. The two most common types of automobile valuations are Stated Value and Actual Cash Value.
Stated Value is the value you as the insured are “stating” the vehicle to be worth. However, this does not necessarily mean you will be paid the full stated amount should you suffer a total loss. Insurance companies design the coverage to allow for the ability to pay out the stated value or the actual cash value, whichever is lower. Often insureds will use the Stated Amount approach in an effort to save money on their premium. However, this plan can adversely affect the insured in the event of a total loss if the stated value was underestimated at policy inception. For example, when first insuring the vehicle, the insured provides a stated value of $15,000 knowing that the vehicle is actually worth $25,000. Should a total loss occur shortly after policy inception, the insurance carrier pays out the lesser of Stated Value and Actual Cash Value, resulting in a payout of $15,000 (minus any deductible) vs. what could have been closer to $25,000 (minus any deductible).
Actual Cash Value (ACV) is a valuation process used by insurance carriers to determine how much will be paid to an insured when a total loss occurs. Regardless of what value an insured might list for their vehicle(s) at policy inception, the claim payout is based on the vehicle’s market/book value at the time of loss, less any deductible that might apply. For example, you were just involved in an accident that resulted in the total loss of a vehicle you purchased brand new three years ago for $25,000. The insurance carrier is going to evaluate many aspects of your vehicle such as year, make, model, mileage, etc. and will determine what they believe the Actual Cash Value of the vehicle to be. Once the insurance company determines the ACV, they will subtract any deductible you might have, and provide you with the remaining payment (ACV of $15,000 – $1,000 Deductible = $14,000 payout).
Please note, whether you have Stated Value or Actual Cash Value, the insurance carrier will pay any monies due to a lien holder on the vehicle in an effort to satisfy the loan, before any funds can be provided to you as the insured.