Actual cash value, depreciation and you — auto edition

You drive a brand-new car off the dealership lot, thrilled at the promise of a lifetime of grand adventures. A month later, a thunderstorm with baseball-sized hail totals your “baby.” But your insurance company will replace it with a new one, right?

Not necessarily. The moment your new car hits the road, its value starts to decrease because of depreciation – the progressive lowering of value. And if you’re involved in an accident that results in a total loss, you’ll likely only receive the vehicle’s actual cash value (ACV), which includes the effects of depreciation. Different companies calculate ACV in different ways; Horace Mann determines the ACV of a vehicle by its market value, age and condition at the time the loss occurred.

A depreciation explication

The modern concept of depreciation was developed in the 1800s by railroad companies looking for a creative way to show more profits. Instead of subtracting the cost of laying track and building trains from their annual income all at once, the companies calculated how much a train was “used up” each year. Then, they counted this smaller amount against their annual income until the train’s value was down to zero.

Today, car depreciation refers to the loss of value over time – partially because of use, and partially because the technology in a vehicle becomes less valuable as it moves toward obsolescence. Complicating things a bit is the fact vehicles don’t depreciate at the same rate; more desirable vehicles like luxury cars and SUVs hold their value longer.

What you can do

There are a few steps you can take to help slow your car’s depreciation. If it’s practical in your situation, you could consider driving it a little less. Carfax says the tipping point for “gentle” car use is about 10,000 miles a year.

Upkeep is also a big factor. Keeping up with oil changes and other routine maintenance will help your vehicle retain value — while keeping you safer on the road!

One other thing to consider: Some insurance companies include provisions for replacing vehicles rather than paying out their actual cash value in case of a total loss. Horace Mann’s auto policy includes such a provision as part of our Educator Advantage® package of value-added benefits, which is provided to educators at no additional cost. Check with your representative to learn more. Meanwhile, learn how ACV affects homeowners insurance.


Visit the HMConnection page to read more articles

WBTL-0767 (Aug. 19)

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