As with most factors surrounding cars and car insurance, a vehicle’s actual value involves a number of factors and perspectives. A new car with a purchase price of $50,000 immediately loses value after driving off the sales lot, and depreciation continues until the value of the vehicle essentially disappears.
As with any perception of value, a car’s worth often depends on who is assessing that worth. Blue books, black books and red books all claim to show vehicle values, though, when it comes to insurance, often it’s the insurer who sets the effective value of your car after an accident or claim. There are few carved in stone answers to the title question.
Book Values and Auto Insurance
No matter which guide you use, be it the Kelley Blue Book, Canadian Black Book or any other, these are indeed just guides, not necessarily accurate reflections of your car’s actual cash value. Consider for a moment that you’re selling your vehicle. You have two interested buyers – one offers you $20,000 and the other offers $25,000. Most sellers will accept the higher offer, and so, in real terms to you, the vehicle is worth $25,000.
However, change the situation to an accident in which the same vehicle is destroyed beyond repair. You’ll have a hard time convincing the insurance company that the vehicle you could sell yesterday for $25,000 is worth that much. Instead of the ACV, insurance claims work on RCV or replacement cost values.
Replacement Cost Values and Auto Insurance
The RCV of a vehicle looks at a car’s value from the perspective of what it takes to repair or replace a given vehicle after an accident. The ACV is still a factor because the RCV needs a target. The ACV, though, doesn’t consider the value of the vehicle from your perspective, but rather the insurer’s perspective. Since it’s in an insurance company’s best interest to assess an ACV that’s as low as possible, insurers use proprietary ACV calculators.
Proprietary ACV calculators likely accelerate the effects of depreciation and other factors that affect book value estimates, which average data from a variety of sources and likely reflect an accurate selling value, but not an accurate RCV. The lower ACV assigned by an insurer may surprise the car owner when an insurance claim takes place. Insurers usually offer replacement value endorsements to prevent this surprise, though of course, it adds to the cost of insurance premiums.
Independent ACV Appraisals
It’s possible to have your vehicle independently appraised, though there’s no guarantee that your appraisal value will prevail in an accident settlement. Independent appraisals are more common when registering vehicles. For example, in Ontario, a used car package available from the government uses a book value to establish the amount of sales tax a buyer pays. That book value can be overruled by a qualified appraisal, reducing the value and therefore the amount of provincial tax paid on the sale.
Appraisals made after an accident will likely cost a driver more than a simple sales appraisal. While there’s no guarantee, the independent appraisal may increase the amount a driver receives for repair or replacement.