Actual Cash Value
January 12, 2017




Most people who purchase automobile insurance believe that they are entitled to full replacement cost of their vehicle in the event of a total loss. This is a wrong assumption and a very clear sign that you have not read your insurance policy. Unless you have purchased a provision for full replacement cost from your insurance company you are only entitled to the ACV value of your loss. ACV stands for Actual Cash Value, which represents the money an insurer will pay out to replace your vehicle.

To determine this amount the PA Department of Insurance has provided strong consumer regulations that call for the insurance company to utilize 3 basic methods. The Guide Source Method, The Actual Cost Method and The Dealer Quotation Method. About fifteen years ago the insurance lobby in PA requested a fourth process to evaluate the ACV which is called the Automated Data Base method. The Data Base method is not mentioned in the DOI Regulation, however, it has become the chosen method by all insurance companies as they settle total-lost-vehicles across the Commonwealth.

Why is this? The answer is simple: These Data Base values are skewed in the favor of the insurance company –  not the vehicle owner. The insurer will tell the consumer that the settlement is based on an automated value that has been established by the DOI and this is what the vehicle owner must accept. This is WRONG! The PA consumer has the right to arbitrate their vehicle settlements based on the PA Regulation. Whereas they can utilize any of the three aforementioned methods we listed to challenge the insurer’s Data Base methods.

Time after time we see our customer’s automobile investment being undervalued by the insurance company when it comes down to paying the total loss settlement. Every insurer will attempt to lowball the settlement hoping the vehicle owner accepts the amount they are offered. Many vehicle owners believe they are only entitled to trade-in value or wholesale value. Absolutely wrong, your insurance policy is an indemnification policy you purchased to be indemnified in the event of a loss. Indemnified means to be made 100% whole You are entitled to receive a vehicle to replace your vehicle of the same make, model, and year, with the same mileage or less and with the same options or better.

The benefit goes to the consumer based on PA State Consumer Law. You may see TV commercials such as the current Liberty Mutual ad that promises to replace your totaled vehicle with a brand new vehicle. This is not accurate information unless you have purchased the option of a full replacement vehicle. Consumers need to realize that what you see on TV is marketing propaganda and not necessarily true. Insurance companies are not in the business of replacing your property with an item that is of a higher value than the item you have lost.

Many vehicle owners have purchased their vehicle at a higher than normal value or accepted a financial arrangement with a lender that over-finances the vehicle due to credit ratings or payment history. Remember your insurance company is only obligated to reimburse you based on the guidelines of the insurance policy which in most cases is the ACV of your vehicle. Gap insurance is an optional insurance coverage for newer cars that can be added to your collision insurance policy. It may pay the difference between the balance of a lease or loan due on a vehicle and what your insurance company pays if the car is considered a total loss. If you, your relatives, friends or associates have experienced a total loss situation, feel free to contact us for advice on collecting a fair and reasonable settlement based on your vehicle’s current value and the consumer’s laws of the Commonwealth.