CALA Total Loss Valuation 2 — Questions and Answers
Question 1: A vehicle has prior unrepaired damage totaling $1,200. How should this affect the actual cash value (ACV) calculation?
- The ACV is reduced by the cost to repair the prior damage (Correct answer)
- The ACV is increased to account for the owner's awareness of the damage
- Prior damage is ignored because it predates the loss event
- The ACV is reduced by the salvage value only
Correct answer: The ACV is reduced by the cost to repair the prior damage
Prior unrepaired damage reduces a vehicle's ACV because the vehicle was already in a diminished condition at the time of the loss.
Question 2: Which valuation method uses recent sales of comparable vehicles in the same geographic region to establish ACV?
- Income approach
- Cost approach
- Market data approach (Correct answer)
- Depreciation schedule approach
Correct answer: Market data approach
The market data approach establishes ACV by analyzing actual transaction prices of comparable vehicles sold in the local market.
Question 3: A total loss vehicle has an outstanding loan balance of $18,000 but an ACV of $14,000. What amount does the insurer typically pay the policyholder?
- $18,000 to satisfy the lien
- $14,000 minus any applicable deductible (Correct answer)
- $14,000 plus the difference to the lienholder
- $0 because the loan exceeds the ACV
Correct answer: $14,000 minus any applicable deductible
The insurer pays ACV minus the deductible; the gap between the loan balance and ACV is the insured's (or GAP insurance's) responsibility.
Question 4: What does the term 'book value' refer to in the context of total loss valuation?
- The vehicle's original MSRP adjusted for inflation
- Published guide values such as those from NADA or Black Book (Correct answer)
- The lienholder's outstanding loan balance
- The replacement cost of a brand-new equivalent vehicle
Correct answer: Published guide values such as those from NADA or Black Book
Book value refers to values published by industry guides like NADA, Black Book, or Kelley Blue Book, which are often used as one reference point for ACV.
Question 5: An adjuster identifies three comparable vehicles but one comp is located 300 miles away in a different market. What is the best practice?
- Use it without adjustment since vehicles have national pricing
- Discard it and find a comp within the local market
- Apply a geographic market adjustment to the comp (Correct answer)
- Average all three comps regardless of location
Correct answer: Apply a geographic market adjustment to the comp
When a comparable vehicle is outside the local market area, a geographic adjustment should be applied to reflect regional price differences.
Question 6: Which of the following best defines 'replacement cost value' as distinguished from ACV in auto total loss claims?
- The cost to replace the vehicle with a new one of like kind and quality without depreciation (Correct answer)
- The cost to repair the vehicle to its pre-loss condition
- The vehicle's ACV plus a betterment charge
- The loan payoff amount on the vehicle
Correct answer: The cost to replace the vehicle with a new one of like kind and quality without depreciation
Replacement cost value is what it costs to replace the damaged vehicle with a new equivalent model without subtracting depreciation, unlike ACV.
Question 7: A 2019 sedan has high mileage of 120,000 miles compared to the average 75,000 for its age. How should the adjuster treat this in valuation?
- Apply a positive adjustment because high-mileage vehicles are tougher
- Apply a negative mileage adjustment to reduce the ACV (Correct answer)
- Ignore mileage since it is already reflected in the model year
- Use the manufacturer's suggested retail price as the base
Correct answer: Apply a negative mileage adjustment to reduce the ACV
Above-average mileage indicates greater wear and reduces market value, so a negative adjustment is applied to the ACV.
CALA Total Loss Valuation 2
A vehicle has prior unrepaired damage totaling $1,200.
How should this affect the actual cash value (ACV) calculation?