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Q

What if my car is totaled and I still owe on the vehicle will the insurance pay off the car?


A

It depends upon how much you owe on your vehicle if your settlement for the total loss of your vehicle will pay off the vehicle or not. When your car is totaled out by an insurer a payment will be offered based on the actual cash value (ACV) of the vehicle at the time of the loss.

If you owe what the car is worth the insurance settlement would pay off your vehicle. If you owe less than after the lien holder was paid off and loan or lease is satisfied you would get to keep the remaining settlement money. If you owe more than the worth of the car though it will not be paid off and thus you will still need to continue payments on the totaled out vehicle even though you no longer have use of it.

The ACV of a vehicle is basically determined by considering "book" values and/or a retail market value survey to reflect the sale prices of comparable vehicles in your area. An insurance company will need to be able to document that the offer made to settle a claim based on the total loss of a vehicle reflects the retail value of the vehicle at the time of the loss. It does not owe any consideration to a loan balance. If an individual knows they are in a negative equity situation, where their loan balance is greater than the value of the vehicle, they should look into Gap insurance. Gap insurance is designed to provide coverage for the difference between the amount owed and the ACV of the insured vehicle.

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When you buy an auto policy, you sign a contract with your insurance company. Part of that contract is you cannot force your insurer to pay out more than your car is worth. You are supposed to be "made whole" by your insurer, meaning you should be put back into relatively the same spot that you were before the accident and this is done in the insurance industry by paying you out actual cash value for your vehicle if it is determined to be a total loss.

Unless you bought auto loan/lease Gap coverage, you are responsible for the difference between the actual cash value of your auto and any outstanding balance owed to the lender after your insurer has paid out the ACV settlement amount. If you are in this situation you may want to contact your lender about extending your existing loan to any replacement auto loan.

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