Adding a car can ruin your year, but it’s especially traumatic when you still owe money for the vehicle. This is an increasingly common fact as more and more people have to take longer loans to buy a car. What to do with a totaled car and no insurance?
If your vehicle is added up and you still owe more than it is worth, your car insurance company will only pay you the actual cash value of the vehicle (ACV). This is the fair market value of the vehicle just before it is damaged by accident.
Car insurance providers never pay more than the value of a vehicle when it is considered a total loss. The collision deduction will be deducted from the actual cash value. Let’s assume that at the time of the accident you owe USD 20,000 and your vehicle is worth USD 15,000 and you have a deduction of USD 1,000. The car insurance company will pay USD 14,000 for the sum of the vehicle.
Insured against gaps
The money will not reach you directly because your car is financed. Instead it can go straight to the bank. Or a check will be issued to you and your lender so that you can sign and send it to the finance company.
In the above scenario, you would still owe $ 6,000 to the lender. This money will have to come from you – unless you have gap insurance.
Insurance against loopholes is reasonable if you have an upside down car loan (you owe more than the car is worth). It will pay the difference between the actual cash value of the vehicle and what is still owed to your car. Some gap insurance policies even cover tax deductible costs.
Did you have insurance before the accident?
If you had insurance before the accident, the insurance company is responsible for repairing the vehicle to its previous condition or for replacing it with a comparable vehicle if the vehicle is considered a total loss. Some insurance companies also offer a vehicle cash equivalent minus any fees and tax deductible expenses. If you choose the cash option, you can use this money to buy a new car. If canceled, you can use the comparison tool to find a new insurance policy.
Your insurance company may dismiss you after a car accident, but it is still responsible for repairing or replacing the vehicle.
Getting car insurance after an accident
If you did not have car insurance before the accident, you will be considered a high-risk driver and the insurance premiums will increase rapidly. Once you become a high-risk driver, you will need to find insurance with a company that has high-risk drivers and may not cover your previous carrier.
If you intend to reinsure your damaged vehicle, this process can be difficult. Some insurance companies do not insure accident vehicles at all, and those that offer it can only offer liability insurance. This means that if you fall into another accident and the accident is your fault, you will be responsible for covering the cost of car repairs and medical expenses.