Insurance Company Pays Whole Value of Car if Totaled

Q: If my car is a total loss, does the insurance company pay the whole value?

A. Yes. Although if there’s a lien on the vehicle (e.g., an auto loan), the insurance carrier will pay off the car loan first, and then the remainder goes to the registered owner.

Keep in mind that sometimes an auto loan balance is more than the fair market value of a car.  We often see this with clients who get into an accident with a brand new car financed for the entire purchase price.  Particularly with luxury vehicles, the fair market value diminishes immediately after driving off the sales lot!

The carrier, in those circumstances, sometimes doesn’t pay off the whole loan (because the market value of the vehicle is less than the balance of the loan), and the vehicle owner can end up still owing on loan for a car they can no longer drive!  

If potentially at risk for such a situation, you may consider “gap insurance” to cover this difference.  Talk to your insurance representative about this, particularly if you’re thinking of purchasing a brand new vehicle with little or no money down. 

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