Getting into a car accident is stressful enough, let alone dealing with the financial implications when your car is considered a total loss by your insurance company. In these situations, it’s common for car owners to wonder about the ultimate destination of the insurance payout: Who gets the insurance check when a car is totaled?
It may seem like a straightforward process, but there are several variables to consider, including who owns the car, the nature of the loan on the car, the specifics of your insurance policy, and your state’s insurance laws. In this blog post, we’ll break down all the factors to comprehensively understand who gets the insurance check when a car is totaled.
What Does It Mean When a Car Is ‘Totaled’?
Before we delve into the complexities of insurance payouts, understand what it means when a car is considered “totaled.” The term refers to a situation where the cost of repairing a damaged car exceeds a certain threshold percentage of its actual cash value (ACV) before the accident. This percentage varies from state to state but typically ranges from 70-100%.
The insurance company determines the ACV of a car by comparing it to similar models in your local area that are currently for sale or have recently sold. If your car is older or has high mileage, the ACV may be significantly lower than you might expect, leading to a higher chance of your vehicle being considered a total loss after an accident.
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The Role of Loan Status in Insurance Payouts
The status of your car loan plays a crucial role in determining who receives the insurance payout when a vehicle is totaled.
If You Own the Car Outright
If you have no loan or lease on your vehicle, you own it outright. In this case, the insurance company will issue the payout directly to you. They will calculate the total loss settlement based on your car’s ACV, deduct your insurance deductible, and send you a check for the remaining amount.
If You’re Financing the Car
In cases where you’re still making payments on a car loan, the situation becomes slightly more complex. The insurance payout will first go towards paying off your outstanding loan balance. If the payout is less than what you owe on the loan, you will still be responsible for the remaining balance unless you have gap insurance. Gap insurance covers the difference between what you owe on your car loan and the car’s ACV, preventing you from owing money on a car you no longer possess.
If the payout is more than what you owe on the car, you’ll receive a check for the excess amount. For example, if the ACV of your car is $10,000, your outstanding loan balance is $7,000, and your deductible is $1,000, your insurance company will send a check for $2,000 directly to you after paying off your loan.
If You’re Leasing the Car
When you lease a car, the leasing company holds the title, essentially making them the car’s owner. If the leased car is totaled, the insurance payout usually goes directly to the leasing company to cover the cost of the vehicle. Depending on the terms of your lease agreement and the payout size, you might still owe additional money to the leasing company.
Understanding Your Insurance Policy
Every insurance policy is different, and your particular policy could affect who receives the insurance check when a car is totaled. It’s crucial to thoroughly understand your policy and discuss any questions or concerns with your insurance agent.
For instance, if you have added a loss payee or lienholder to your insurance policy (often a requirement if you finance or lease a vehicle), they are typically entitled to the insurance payout in case of a total loss.
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How State Laws Affect Insurance Payouts
Consider how your state’s laws might influence the insurance payout process. Every state has rules regarding totaled cars, including how total loss is determined and who is entitled to the insurance payout. Researching your state’s laws or consulting a professional to fully understand how they apply to your situation is a good idea.
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Determining Fault and Its Impact on Payouts
While it’s not often discussed, the question of who was at fault in the accident can also significantly impact who gets the insurance check. If the other driver was at fault and they have sufficient insurance, their insurance company should pay for your vehicle’s damages up to their policy’s limits.
In cases where you are at fault or the other driver lacks sufficient insurance coverage, the payout will depend on your insurance policy. If you have collision coverage, your insurance will pay for the damages up to your policy’s limits, minus your deductible. Without collision coverage, you might not receive a payout for your totaled car unless you live in a no-fault state.
The Salvage Title: Keeping a Totaled Car
Sometimes, you should keep your totaled vehicle and repair it, especially if it has sentimental value or if you believe it can still be safely driven. In this case, you can request the insurance company to allow you to retain the salvage.
You’ll still receive a payout, but it will be less than the full ACV of the car because the insurance company will deduct the salvage value of your vehicle from your payout. Remember that keeping a totaled car may involve additional complications, such as obtaining a salvage title and passing a safety inspection before you can legally drive the vehicle again.
When Disputes Arise: Contesting the Payout Amount
There may be cases where you disagree with the insurance company’s assessment of your car’s ACV or the cost of repairs. If you believe your car is worth more than the insurance company has assessed or disagree that it is a total loss, you can contest their decision.
This process can be complex, involving obtaining independent appraisals, negotiating with the insurance company, and potentially taking legal action. It’s recommended to consult with a professional if you decide to take this route.
The Role of Comprehensive and Collision Coverage
Comprehensive and collision coverage on your insurance policy can significantly impact who gets the insurance check when a car is totaled. Collision coverage pays for your car’s damages if you’re at fault in an accident or hit an object like a tree or a fence. Comprehensive coverage pays for damages caused by theft, vandalism, or natural disasters.
If you carry both types of coverage, your insurance company will pay for your car’s damages, regardless of who was at fault or what caused the damage (minus your deductible). Without this coverage, you may rely on the other driver’s insurance (if they were at fault and adequately insured) or pay out of pocket. Contact Barrios Virgüez today for help with your case.