Will Insurance Cover My Car Loan If It’s Totaled in an Accident?

After the shock of a car accident wears off, the last thing you want to hear is more distressing news. But it’s not uncommon for your day to go from bad to worse after your insurance company calls to tell you that your car is a “total loss.” In a frustrating turn of events, not only do you have to deal with losing your everyday vehicle, but you also remember that your car was financed with a loan to which you still owe a balance. Now what?

Do you still have to make loan payments on a car that no longer exists to you? If the accident was a result of another driver’s negligence, will their insurance company pay off your loan? Well, it’s complicated. We’ve outlined everything you need to know.

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If My Car Is Totaled, Does the Insurance Company Have to Pay Me the Balance I Owe on My Car Loan?

If a car is totaled in an accident that was another driver’s fault, it’s often assumed that their insurance company is obliged to pay for the remainder of the loan payments. Not so simple. The insurance company will only reimburse you for the current value of the car, not necessarily the amount you’ve been paying in loans. As you may know, cars tend to depreciate over time as mileage builds up and the state of the car worsens.

In the best-case scenario, the total loss check you receive from the insurance company will be for a greater amount than the sum you still owe on the car loan. In the rare case that your vehicle increased in value over time, you’ll be able to pocket a few hundred dollars that you can use toward purchasing a new car. More likely, the amount of money you currently pay in loans will be greater than the current value of the car, and thus, the amount the insurance company will give you. In this case, you’re legally required to continue to pay off the remainder of the loan out-of-pocket, even though the car doesn’t exist to you anymore.

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Man taking pictures of a broken car after an accident. A driver in a reflective vest in the background calling car accident injury attorneys

When Is a Vehicle Considered Totaled?

Every insurance company has its own rules for determining when a car is considered a total loss. In most scenarios, a totaled vehicle is one for which the cost of repair exceeds a certain percentage of the car’s value. That standard is usually 80 percent. In this case, for example, if your car is currently valued at $10,000 and sustains damages upwards of $8,000, it would be considered totaled. The insurance company, in this scenario, would pay you the full $10,000.

Remember, $10,000 represents the current value of the car as determined by the insurance company, not necessarily the value at which you initially bought the car. In the insurance world, this is referred to as the vehicle’s actual cash value (ACV). The company will use software programs and other applications like Kelly Blue Book and the National Automobile Dealers Association Used Car Guide to calculate the ACV.

What Should You Do If You Still Owe Money on Your Car Loan After Your Car Is Totaled?

If the insurance company determines that you owe more than the vehicle is worth, it’s important that you take the necessary measures to protect yourself. With the help of a trusted attorney, this can include:

  • Clarifying that the ACV is correct: It’s vital that once the insurance company establishes the value of your vehicle, you check their valuation. You can do so by examining online sites like Kelly Blue Book and National Automobile Dealers Association and determining the retail price of your vehicle. If you discover a disparity, a lawyer can help you bridge that gap.
  • File a GAP insurance claim: You may have purchased guaranteed auto protection (GAP) when you obtained your car loan, which stands to cover the difference between what you owe on the vehicle and the vehicle’s actual worth.
  • Continue to pay your car loan payments: While this saga ensues, don’t forget to continue to pay off your car loans. California law requires you to pay these loans, even in the event of a totaled vehicle at the hands of a negligent driver.
piggy bank with money under it and a wooden car on the table to demonstrate car insurance
piggy bank with money under it and a wooden car on the table to demonstrate car insurance

What Should You Do If You Still Owe Money on Your Car Loan After Your Car Is Totaled?

If the insurance company determines that you owe more than the vehicle is worth, it’s important that you take the necessary measures to protect yourself. With the help of a trusted attorney, this can include:

  • Clarifying that the ACV is correct: It’s vital that once the insurance company establishes the value of your vehicle, you check their valuation. You can do so by examining online sites like Kelly Blue Book and National Automobile Dealers Association and determining the retail price of your vehicle. If you discover a disparity, a lawyer can help you bridge that gap.
  • File a GAP insurance claim: You may have purchased guaranteed auto protection (GAP) when you obtained your car loan, which stands to cover the difference between what you owe on the vehicle and the vehicle’s actual worth.
  • Continue to pay your car loan payments: While this saga ensues, don’t forget to continue to pay off your car loans. California law requires you to pay these loans, even in the event of a totaled vehicle at the hands of a negligent driver.

Contact the Best Car Accident Lawyers at The Barnes Firm

If your car was totaled in an accident as a result of another driver’s negligence, be aware that the at-fault party’s insurance company will fight to settle for as little as possible, which could leave you struggling to pay off car loans and other damages. At The Barnes Firm, we’re here to assist you. Our trusted legal team will help you battle the insurance company so that you can get the compensation you deserve. Having a professional attorney representing your interests will ensure that you obtain a fair settlement.

With more than 100 years of combined legal experience, our team of knowledgeable lawyers can handle a case of any size and are available 24/7 to review your accident and answer your questions. To schedule a free consultation with our experienced auto accident attorneys, call The Barnes Law Firm or fill out our online contact form today.

The Barnes Firm (800) 800-0000

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