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12 minute read Published on Feb 3, 2026 by BrokerLink Communications
When your five‑year‑old SUV is declared a total loss after a collision, you might expect a big cheque, but do you know how much you’ll really get? With an actual cash value (ACV) policy, the insurer won’t hand over what it’d cost to buy a brand‑new replacement. Instead, they start with the current market value of a similar vehicle and subtract depreciation for wear, age, and mileage.
Contrast that with replacement cost coverage, where depreciation doesn’t apply as long as you actually replace the vehicle or item. You’re made whole with a like‑quality replacement, but at a higher premium. In fact, Canadian home and auto insurers frequently use ACV by default, so opting for replacement cost often means paying extra, yet this can be well worth it to avoid surprise shortfalls.
The fact is that brand-new vehicles lose value (depreciation) extremely quickly; sometimes by as much as 20% to 30% in the first year alone, according to the Canadian Black Book. That means if your new vehicle is totalled just months after driving it off the lot, an ACV policy might only cover a fraction of what you paid. And it doesn’t stop there. Vehicles continue to depreciate year after year, even if they’re in great shape.
Actual cash value (ACV) is simply the market value of your car right now, as in, what it’s worth in its current condition, not what you once paid. Insurance companies use this to determine payouts when a vehicle is stolen or declared a total loss. Please note that actual cost value coverage doesn’t just apply to car insurance; it can apply to other types of insurance, such as home insurance. In essence, it is the price someone would pay for your car if it were sold on eBay or Facebook Marketplace today. Each insurance company has its own definition of actual cost value, which should be detailed in your insurance policy.
Insurance providers calculate ACV in two parts:
Replacement cost: The price of buying a similar, new or used model today.
Depreciation: Deductions based on age, mileage, condition, and broader market trends.
So, if we put that into a mathematical formula, it looks something like this:
ACV = Replacement cost – depreciation
So, if your auto insurance policy includes actual cash value coverage, the payment you will receive is based on the value of the vehicle minus any depreciation for age, wear and tear, mileage, and more. Insurance companies tend to favour this method because, let’s be honest, it usually costs them less. Since ACV factors in depreciation, you're not getting back the full amount that you originally paid. That’s great for their bottom line, but it can be a tough pill to swallow if you’re expecting a cheque big enough to replace your vehicle with something similar.
Please note that public and private insurers may value actual cash value differently. So, if you live in a province with public auto insurance (i.e., British Columbia, Saskatchewan, Manitoba, and Quebec), actual cash value may be valued differently than in the rest of the provinces and territories with private auto insurance.
Canadian statistics show that depreciation happens fast and furious. As we mentioned earlier, cars can depreciate up to 30% within the first year. Then, for the next four years, they generally depreciate 8% to 15% per year. This means that after about five years, a vehicle typically holds on to just 40% to 45% of its original value.
According to the AutoTrader Price Index Q1 2025, the average national price of new cars was just over $61,500 and for new SUVs, it was just under $59,000. So, let's round that to around $60,000 and see how depreciation could look:
$60,000 vehicle depreciation timeline
Year
Depreciation rate
Estimated value
Total depreciation
1
25%
$45,000
–$15,000
2
12%
$39,600
–$20,400
3
$34,848
–$25,152
4
$30,665
–$29,335
5
$26,985
–$33,015
By year five, your $60,000 car may only be worth around $27,000, or 45% of its original value. Since vehicles depreciate especially fast, it could be worth adding a waiver of depreciation to your car insurance policy. Contact BrokerLink to learn more about how insurance companies define actual cost value and whether adding a depreciation waiver to your policy is right for you.
Imagine this: Your car is stolen, and your insurance payout only covers enough to buy a six-year-old used model. Obviously, that's not exactly a win. This is where having replacement cost coverage can make a huge difference.
Replacement cost is an insurance term that means payment will be made based on the actual cost of replacing your damaged or stolen property (in the case of auto insurance coverage, the cost of replacing your car). Replacement cost is generally preferred by policyholders because it means that if your car were stolen or damaged, your insurance company would cover the full cost to replace your vehicle with a new one of similar kind and quality (up to your policy limit), without subtracting for depreciation, like wear and tear or age.
Honestly, despite the higher premiums that a replacement cost policy generally comes with, this type of coverage is especially valuable in today’s market. According to Statistics Canada, from December 2019 to December 2024, the median price of new vehicles rose by 61.5%, and used vehicles surged by 82.2%. That means a policy that covered replacement cost in 2019 might pay out thousands more today, helping you keep up with inflation and avoid paying out of pocket for price jumps you didn’t see coming.
Let's say your 2021 Sedan, which you bought brand new that year, was stolen in 2025. According to the Auto Trader Price Index Q1 2021, the national average price of new cars was just under $36,000. Fast forward to Q1 2025, and we already know that the average increased to just over $61,500. Let's compare:
Actual cash value (depreciated value)
Replacement cost value
After four years, your car may be valued at around:
$18,400
That's less than a third of what it could cost to replace it today.
You could receive the full $61,500 (or the current market value of a similar new car)
That’s a difference of over $43,000, just based on the type of coverage you chose.
When it comes time to file a claim, understanding what goes into your vehicle’s actual cash value policy can help you set realistic expectations and maybe even plan ahead. Insurance companies look at more than just make and model. In fact, they consider many factors. Here's a breakdown of the key factors that determine how much your car is worth right now:
Not only do cars depreciate significantly within the first few years, but they actually start depreciating the second you drive off the dealership lot. In fact, according to Car Loans Canada, that initial drop can be as much as 10% right away. From there, the value continues to slide year after year, which means the older your vehicle gets, the less it’s generally worth. For instance:
New cars lose 20% to 30% of their value in the first year.
After five years, most vehicles are worth only 40% to 45% of their original price.
Limited-edition or discontinued models may retain value better (or worse) depending on demand.
The higher your odometer reading, the lower your actual cash value. This is because insurance companies consider mileage to be a proxy for wear and tear. It's worth noting that:
The average driving in Canada is around 15,000 to 20,000 kilometres per year.
Every additional 20,000 kilometres on your vehicle can reduce its value by 5% to 10%, according to the Canadian Black Book.
It probably doesn't come as a shock that dents, stains, and especially accident history can take a big chunk out of your car’s worth. For example:
Collisions can cause a 15% to 40% drop in value, according to the Canadian Black Book.
Cosmetic dents and interior wear (torn upholstery, smoke damage, stains) can also count against you.
Regular maintenance can sometimes slow depreciation.
For example, say your SUV was fully repaired after a 2022 collision. If the average market value for similar SUVs in 2025 is just under $59,000, its value could be reduced by anywhere from $8,850 (15%) to $23,600 (40%) due to the accident history, even if it’s in excellent condition.
Did you know that where you live can also affect what your vehicle is worth? For example:
Trucks and SUVs retain more value in Alberta and Northern B.C., where harsh winters and work fleets are common.
Compact sedans may hold better value in urban Ontario or Quebec.
EVs and hybrids are climbing in value in several provinces, largely due to their fuel economy.
For example, a used Dodge Ram 1500 may sell for thousands more in Edmonton than in Halifax, because demand fuels the price.
On top of all of that, there are also broader economic factors that can affect a car's value. For instance:
The 2025 U.S. tariffs
Inflation between Dec 2019 and Dec 2024 hit the Consumer Price Index (CPI) for passenger-vehicle parts and repairs, rising 22.3%.
Pandemic shutdowns and supply chain delays reduced vehicle supply, pushing car prices higher.
More costly repairs can speed up insurance write-offs, lowering the actual cash value faster.
Now that you understand the key differences between actual cost value and replacement cost, you might be wondering which one is right for you. Here’s what you need to know to decide which option suits you best:
While replacement cost insurance offers more generous payouts, it also comes with a higher premium. Premiums start at a higher rate because providers know they will have to pay out significantly more with this coverage in the event of a total loss. Remember, cars lose up to 30% value within the first year alone, and up to 60% within five years, but with replacement cost coverage, insurance companies have to pay out that full value. Plus, as the costs of new and used vehicles continue to climb, insurance premiums are increased annually to help make sure they still cover the full replacement cost.
On the other hand, actual cash value policies are usually more affordable, making them a popular choice for budget-conscious drivers. The fact is that more and more Canadians are feeling the pinch at renewal time. Statistics Canada reported a 9.6 % year-over-year increase in auto insurance premiums in both July and September 2024, the largest jump in over a decade. With costs climbing this fast, it’s no surprise that drivers are looking for savings wherever they can, making actual cash value coverage an attractive option. Here's a side-by-side comparison:
Feature
Actual cash value
Replacement cost
Premium cost
Lower
Higher
Payout calculation
Replacement cost minus depreciation
Cost to replace with a similar new model
Is depreciation considered?
Yes
No
Common use case
Older or high-mileage vehicles
Newer vehicles or those under financing or lease agreements
Best for
Saving on premiums
Protecting value over time
Depending on the age of your vehicle, many insurers offer a waiver of depreciation, which is a policy rider that prevents the insurance company from applying depreciation during that period. That means if your new car is stolen or totalled, your payout is based on what you paid, not what it’s worth today. You can add a waiver of depreciation when you purchase or lease a brand-new vehicle.
Waivers can vary by province. For example, according to the Financial Services Regulatory Authority (FRSA) in Ontario, it's called OPCF 43: Removing Depreciation Deduction (or OFCF 43A if your vehicle is leased) and states that the maximum amount the insurance company will pay will be the lowest of the following:
The actual purchase price of the vehicle and its equipment
The manufacturer’s suggested retail price (MSRP) of the vehicle and its equipment on the original purchase date
The cost to replace the vehicle with a new one of the same make, model, and similar equipment
To find out how a depreciation waiver works in your province or territory, contact a local insurance broker.
You’ve filed a claim. Your car is a write-off. Now comes the big question: what is it worth today? To figure that out, insurers don’t just guess or check Kijiji. Most Canadian insurance companies rely on third-party vehicle valuation platforms, like Audatex, Mitchell, or CCC Intelligent Solutions, to determine your vehicle’s actual cash value. Others may use internal proprietary models, particularly larger insurance providers with their own data teams. Let's take a closer look at internal vs. third party valuation:
Approach
Pros
Cons
Third-party tools
Transparent, widely used, market-based
May not reflect unique or well-maintained vehicles
Internal models
Customizable, potentially more flexible
Less transparent; harder to dispute without documentation
Here’s how the process usually works for calculating your car's actual cash value:
Your provider collects vehicle details (e.g., year, make, model, trim, mileage, accident history, condition, etc.)
They input this data into a valuation system
The platform compares your car to market listings
A value is generated
Your provider presents you with the offer, often accompanied by a report showing how the value was calculated
Yes. If you believe your vehicle is worth more than the insurance company’s estimate, you have every right to negotiate. Here are some ways to help you challenge it:
Gather recent sales data for similar vehicles in your region from sites like AutoTrader, Canadian Black Book, Kijiji, or dealership listings.
Highlight any upgrades, maintenance history, or unusually low mileage, as these can help increase your car's value.
Provide any documentation you have, such as receipts for upgraded parts, service records, and even appraisals.
If your car was well-maintained, rare, or loaded with features, don’t be shy about letting your provider know. Insurance companies will sometimes adjust offers when they're shown reliable, region-specific evidence.
With new and used car prices still elevated (the average national price for new cars was just over $61,500 and just over $34,000 for used cars in 2025, according to AutoTrader), and inflation driving up repair and parts costs, even a small difference in actual cash value could mean thousands out of your pocket or not. Contact your insurance company if you're curious about how it determines actual cash value.
If your vehicle is written off and the payout offer feels too low, you don’t have to accept it at face value. Insurance adjusters work from formulas, but that doesn’t mean your car’s story ends in a spreadsheet. BrokerLink’s car insurance experts have put together a list of our top tips to help you push for a fairer actual cash value settlement. Take a look:
Before entering into a negotiation with your insurance company, ask a trusted mechanic or body shop to give a written statement about your vehicle’s condition and value before the incident. You may even want to take your vehicle around to different auto body shops in your area. Gathering two to three estimates helps strengthen your case, especially if the car was in exceptional shape.
Look up similar vehicles (same make, model, year, mileage, and features) listed for sale in your area using:
AutoTrader.ca
Kijiji Autos
Canadian Black Book
Carpages.ca
You can take screenshots or print the listings as evidence. Bonus points if you find recently sold examples from local dealerships or auction sites.
If the gap between what you believe it's valued at and what the insurance company is offering is significant:
An independent adjuster can review the insurer’s report and sometimes advocate on your behalf
A private appraiser can give you a formal valuation (out-of-pocket costs)
This may be especially helpful if your car had upgrades or rare features that weren’t factored in.
If you have been suffering without your vehicle (perhaps you’re having trouble getting to work each day or dropping your children off at school), tell the insurance adjuster about it. While it won’t replace hard numbers, telling your story can help humanize your insurance claim, especially when speaking to a claims representative. You can document these challenges with transit receipts, missed work notes, or a simple personal statement.
While this might not make sense for small claims, if your vehicle is high-value or your claim has been denied or stalled, consulting a lawyer can be worth it, especially if your potential increase in payout outweighs legal fees. Plus, many lawyers offer free consultations, which can help you determine whether it's worth pursuing without shelling out money immediately.
In the event your car is stolen or totalled, it’s important to understand how the insurance company will calculate the loss. Will they account for depreciation or, conversely, for inflation? These are pertinent questions if you want to know how much money you will receive should a major accident occur.
BrokerLink is here to help you understand all there is to know about actual cash value and replacement cost. We can walk you through both terms, explain the advantages and disadvantages of each calculation method, and help you find an affordable auto insurance policy with your preferred coverage type.
Contact the experts at BrokerLink today by giving us a call, sending us an email, or visiting us in person at one of our many locations throughout Canada. You can also use our free online quote tool to request and receive a free car insurance quote in just minutes! All BrokerLink quotes are accurate, competitive, and 100% obligation-free.
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