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Payout can't exceed value of car

Question: A tree fell on my car and totaled it. The car is financed, and I’m still making payments.  My insurance agent told me that the lienholder gets a check, and I get a check of the total cash value of the car. While I would love for both of us to get paid like this, I doubt this is right. Is it? 

Answer: You’re correct that you and your lienholder will not each get paid the value of your vehicle.

When a car is declared a total loss by a car insurance company, the actual cash value (ACV) should be paid out – but only once.   Car insurance settlements are supposed to make you whole and not put you in a better place (by, say, paying off your loan and giving you the full value of your vehicle as well).

In your case, a tree fell on your vehicle; so you would have filed a comprehensive claim for the incident.  (A comprehensive claim is less likely than a collision claim to raise your future car insurance rates. See “Does a comprehensive claim increase your premium?”)

Once your car was found to be a total loss by your claims adjuster, the ACV should have been determined.  The next step is for a settlement check to be made in that amount, minus your comprehensive deductible amount.  The ACV amount is only paid out once; no insurer will pay out more than the value of the vehicle and will never, ever pay out the value of the car twice. However, your insurer may make out a couple of checks that together add up to the car's value.

Since you have a lienholder on the totaled vehicle, that financial institution would receive a check (sometimes it will be in both names for you to sign over to the lienholder).  A second check may be made out to  you, though, if you owe less than the value of the car to your lienholder. 

For instance, say your vehicle’s ACV is determined to be $12,500. You only owe $10,000 on the vehicle and have a deductible of $500.  In this case, your lienholder would get a check for $10,000, and you would get a check for $2,000 (remaining ACV amount of $2,500 minus $500 deductible). 

Perhaps this is what your agent meant about both you and the lienholder getting checks and just wasn’t explaining the process very well.

Now, if you owe the same amount or more than the worth of the financed car, then you would not end up with a check at all from your insurance company. 

If you owe more than the vehicle was worth when it was totaled by the tree, then you’d still owe your lienholder money after the auto insurance settlement payment.

Say your vehicle was worth $10,500, you had a $500 deductible and you still owed $12,000, then after your insurer paid out $10,000 (the $500 is subtracted from the payout for your deductible), you’d still owe your lienholder $2,000.

If you were smart enough to purchase gap insurance, it should take care of this $2,000 difference between the ACV of your vehicle and the amount still due on your loan.  If not, then you’ll be left to pay it out of pocket.

If you have questions about how your total loss settlement check is going to be written out to or sent to, then you may again try to discuss this with your agent or instead contact your claims department directly.  Claims adjusters and representatives may be able to better explain the process to you since their department is more closely involved with claims on a daily basis.

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