Drivers who have physical damage coverage on the vehicle may be wondering how auto insurance for totaled car works, especially if they took out a loan to finance the vehicle and they are still making payments on it. The insurance company provides coverage for the vehicles cash value only, not the cars replacement value or how much the owner paid for it initially.
Since the cash value of the vehicle depreciates immediately when it is driven off the dealer’s lot, it is unlikely that the full amount of the loan will be paid off by the owner’s auto insurance company. The insurer will pay out on the claim up to the cash value of the car, less the policy deductible.
When an accident occurs and the owner reports it to the insurance company, the adjuster will arrange to have the car inspected so that the amount of the damage can be evaluated. The insurer will obtain an estimate of the cost to repair the damage to the vehicle and make an offer to settle the claim to the policyholder.
Determine Cash Value of the Vehicle
If the car has been totaled in the accident, the insurance company will determine its cash value based on the selling price of similar vehicles in the insured’s area. The insurance company looks for cars in the same model year with a similar amount of mileage to make this determination.
As long as there is an outstanding loan on the car, the insurance company will pay the settlement amount to the bank or financing company. If the amount of the payout is not high enough to pay off the loan in full, the owner is responsible for paying the difference even if he or she no longer has a drivable vehicle.
Gap Coverage and Auto Insurance for Totaled Car
Gap insurance coverage can be added to a policy to provide coverage for the amount between the actual cash value of the car and the amount owing on it. A driver can choose to buy it from the same company which hold the main policy or from a separate provider. Some dealers offer gap auto insurance coverage when the car is sold as well.
To find the best pricing for gap auto insurance coverage, consumers should make a point of shopping around for coverage. Buying the insurance offered through the dealer may be a convenient way to get this coverage, but it may not the be most economical way to go.
Since a new car owner needs to have auto insurance coverage in place before picking up the vehicle, he or she will likely be looking for coverage anyway. Going online is a very simple and effective way to get quotes for auto insurance coverage for the new car which include gap protection. A number of auto insurance companies offer free online quotes for coverage and the owner would simply answer a few questions to find out how much the total cost of coverage would be.