If the insurance company deems your car a “total loss”, you’re still stuck with the terms of your car loan. Collision and comprehension will not cover the cost of replacing your car. Therefore it may not cover all payments you have left on your loan. You should know that what your insurance company pays out may not be be quite enough to pay off the entire loan. You many wind up with a few payments left on a car you didn’t even get to keep!
When Is a Car “Totaled”?
Each automobile insurance company has its own rules in determining whether a car is a total loss following an accident. But typically, when the cost of repairing a car exceeds a certain percentage of the value of the car, the vehicle is declared a total loss. The benchmark percentage most insurance companies use is around 80%. Your insurer will value your car based on a formula that will consider several factors. These exact factors are generally kept a trade secret. But may include age, wear and tear, depreciation, and manufacturer’s suggested retail price. It is unlikely that your lender and your insurer will share an opinion on what the auto is worth.
Getting The Payment and Next Steps
When you receive the check for the totaled car, the insurance company is required to include the lien holder as a payee on the check, to ensure that the money goes toward paying off any loan you have on the car. This is because any bank or financial lender with which you have a car loan has the right to be paid first out of any total loss proceeds that an insurance company pays out on the vehicle. But what happens if your loan amount is larger than the amount of the insurance company’s check? The very short answer to this question is… you are still legally obligated to make your monthly loan payments to the bank or financial lender until the loan is paid off.
Additional Types of Insurance That Can Cover Your More Completely
However you do have some options for total coverage in the event of an accident that leaves you holding the bill for a totaled car.
- Gap Insurance – Guaranteed Asset Protection insurance was established in the North American financial industry. GAP insurance protects the borrower if the car is totaled by paying the remaining difference between the actual cash value of a vehicle and the balance still owed on the financing. Prices vary, but this type of insurance tends to only cost a few dollars a month.
- Replacement Insurance – In the insurance industry, replacement cost is the amount the insurance company will pay to replace the car if it is damaged or stolen. No matter how old or used the car was at the time of loss, the insurance company will pay the vehicle’s original price.
When it comes to car insurance, buying the legal minimum will help you to stay out of trouble but gap or replacement insurance can provide you with piece of mind that you’ll be covered if you have your care totaled or stolen.
Rollins Insurance represents multiple A-rated insurance companies to make sure we deliver the most competitive rate packages to our clients in Kentucky and Ohio.
Rollins Insurance is an independent insurance agency providing our clients the best prices with the most coverage possible since 2008. We represent multiple A-rated insurance companies to make sure we deliver the most competitive rate packages to our clients in Kentucky and Ohio. We find that most people are under-insured and over-paying when we meet them. We love what we do and our primary business is Personal Auto, Homeowners, and Life and Health insurance. We are a family-owned and managed business that specializes in providing needs-based insurance services.
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