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Is my car insurance company required to pay off my car loan?

Question:  I hit a deer in my 2011 Kia. I owe $700 more than the pay off.  Is my car insurance company obligated to cover my loss and pay the car off?

Answer:  No. Your car insurance company is not required to pay off your car loan if it is totaled after you hit a deer.

Comprehensive insurance coverage, which is what you would make your claim under for striking a deer, pays only up to the actual cash value (ACV) of your vehicle if it is totaled out in an auto accident.

ACV is the amount your vehicle was worth at the moment before the accident that totaled it out. No auto insurance company pays out more than the worth of a vehicle at the time of the accident.

If you owe more than the car is worth -- have negative equity in your vehicle -- then what you need is gap insurance to cover the difference between what your primary car insurance company pays out for ACV and the balance of your car loan.

If you have gap insurance, then you would make a claim with them so that they can pay the $700 difference that is still owed on your car loan even after your comprehensive claim settlement has been paid out to your lienholder.

If you are without gap insurance, unfortunately, it's too late to buy it now that you have already been in an accident. Without this coverage, the $700 remaining on your car loan (after your primary insurance settlement) falls on you to pay personally. It's the downside to owing more to your lienholder than the value of your vehicle.

When replacing your totaled-out Kia, remember that if you will again be put in a position where you will owe more than the worth of the vehicle, you should think about purchasing gap insurance from your car insurance provider.

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