Whenever comprehensive and collision coverage is selected on a policy the vehicle is covered up to the actual cash value unless otherwise stated. Some policies are written as stated value such as commercial auto policy that have vehicles that are significantly altered from their original condition or classic car policies that insure the classic vehicles to their appraised value. Almost all personal auto policies are written on an actual cash value basis for the vehicle.
This means that in the event of a total loss or theft with no vehicle recovery that the vehicle is covered to the current fair market value. There are many factors that determine what the fair market or actual cash value is at the time of the loss. Vehicle values will vary from year, make, model, mileage, and condition. In order to determine the value of the insured vehicle appropriately all of these need to be reviewed in order to ensure that the appropriate value is being given for the totaled vehicle.
This system is designed to make sure that the insured is compensated for what the true value of their vehicle was at the time of the loss without putting them into a position that of betterment. It is not likely that there will be an identical vehicle to the one that is being replaced while considering all of the variables involved. The best way to ensure that the actual cash value of a vehicle is accurate is to review other vehicles that are comparable and have similar characteristics. Generally it is wise to find 3 very similar vehicles and average the cost of these in order to determine an accurate value of the vehicle in question.
Many times consumers that have an auto loan the actual cash value will fall short of the principal balance of their loan. They often expect that the insurance company will pay for the total amount owed for the vehicle. This is not the case and when viewed from an opposite perspective if the amount owed on a vehicle was significantly less that the principal balance of the loan. The insurance company would not limit the compensation for the vehicle that was lost to the balance. There are policies that are offered to protect consumers from the "gap" between the actual cash value of their vehicle and the loan balance. These are commonly referred to as Gap policies. They are usually offered at the time of the purchase of the vehicle.
