My car was totaled and I still owe more money on it. Do I have any options?

I was in a car accident recently and my car was totaled. The insurance company  paid the market value for it, but it's not enough to cover the debt I still owe on it. Do I have any options or am I out of luck?

Question

I was in a car accident recently and my car was totaled. The insurance company paid the market value for it, but it's not enough to cover the debt I still owe on it. Do I have any options or am I out of luck?

Answer

This problem is more common than you might think. After a car accident involving extensive vehicle damage, many car owners are left with a loan balance on a vehicle they can no longer drive.

After a car accident, your vehicle might be so seriously damaged that the insurer deems it a total loss -- which means that the costs of fixing the car exceed what the car is worth. In that case, the insurance company will pay you the fair market value of the vehicle (this is known as actual cash value, or ACV).

But if you’re still in repayment on a car loan, it’s possible that you owe more on the vehicle than the amount of its ACV. So, the insurer will pay you the car's ACV, but you are responsible for making up whatever you owe on your vehicle. So, what now? The answer will depend on whether or not you have "gap insurance."

If You Have Gap Insurance. "Gap" insurance, or guaranteed auto protection insurance, will kick in to pay the difference (the "gap") between what the insurance company is willing to pay for your totaled car and what you actually owe the loan holder.

Gap insurance is required under many vehicle purchase agreements, and you may actually have this coverage without being aware of it. It could have been added on to your monthly car payments, or it may be part of your car insurance policy. So, first things first -- get a copy of your car insurance policy and your vehicle purchase agreement and read those documents carefully.

If You Don't Have Gap Insurance. Your best option might be to try to get the insurance company to take another look at its estimate of your vehicle's actual cash value. Your argument here is obviously that the insurer underestimated the vehicle's value, and you're entitled to a higher ACV payout. For example, make sure that the insurer's valuation includes all vehicle “extras” like air conditioning, performance packages, and custom equipment that isn’t removable.

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