What is the Difference Between Replacement Cost and Actual Value?

When thinking about auto insurance, be sure to work closely with your agent at XL Brokerage Inc. serving Selden, NY and the surrounding area. Keep your agent informed of any changes that are happening in your life, such as a job change or letting another person drive your vehicle Also, for enhanced protection, consider insuring the vehicle for replacement value.

The Benefits of Replacement Value Protection

Replacement value differs from actual value. The actual value is what a vehicle would sell for on the used auto market. This can be estimated by referring to some industry-wide statistics for auto sales. Replacement value is the amount needed to buy a new vehicle of the same model and type.

If a vehicle is involved in a major accident and severely damaged, it may not be worth repairing it if the cost to repair it is more than the vehicle is worth. In common terminology, this level of damage is described as a vehicle that is “totaled.”

If the insurance covers only the actual value of the vehicle, the claim will be limited to the actual value amount less any deductible. If the insurance covers the replacement value, the claim will be up to the cost of a new vehicle of the same model and type, less any deductible.

One thing to consider is how much and how quickly the value of a new car goes down. It is said that a buyer loses a few thousand dollars of value simply by driving a vehicle off the dealer’s lot.

A Wise Strategy to Consider

One strategy to discuss with your insurance agent is how to choose a deductible and balance this amount with the premiums for replacement cost coverage. The cleverness of this strategy is that the deductible limits the amount of loss to a certain figure and a new car of the same type replaces a vehicle that is totally damaged. Even in the worst-case scenario, you know how much it will cost.

Each year it is a good idea to conduct an auto insurance review to make sure your coverage is adequate. Contact your agent at XL Brokerage Inc. in Selden, NY for a quote for any auto insurance needs and to see how replacement cost coverage is well worth considering.