What does "actual cash value" refer to in auto insurance?

"Actual cash value" in auto insurance refers to the replacement cost of the vehicle after accounting for depreciation. This means that when a vehicle is damaged or totaled, the insurer will reimburse the policyholder based on the current market value of the vehicle rather than what it would cost to buy a new one or to replace it at current prices. Depreciation takes into account factors such as the age of the vehicle, its condition, and the typical decline in value over time.

As a result, if a vehicle is worth less now than it was when originally purchased due to wear and tear or market factors, the payout will reflect that reduced value. This method ensures that the insured receives a fair amount corresponding to what the vehicle would sell for in its current state, rather than the higher prices associated with new vehicles.