The question of how much an auto insurance company will pay when a car is totalled in an accident is a common one. The amount the company will pay out is based on the car’s cash value. This amount is not the same as how much it would cost to replace the car or what the owner paid for it originally. Instead, it reflects how a vehicle with similar features would cost.
Insurance companies will pay out when a car is totalled if the driver has physical damage coverage. Collision insurance pays for the cost to repair a vehicle which has been damaged due to coming into contact with another car or an inanimate object. Comprehensive auto insurance coverage pays out when the damage to the vehicle is caused by another type of event, including:
- Falling objects
- Striking an animal
Insurance Payout for a Totalled Vehicle
When an accident occurs, the insurance company determines whether the car can be repaired. The vehicle will be taken to a garage where the amount of damage will be evaluated. The owner and the adjuster will receive an estimate of how much it will cost to repair the car.
The insurance company will consider the current cash value of the vehicle and how much it will cost to repair it when determining whether to repair the car or if the damage is too serious to warrant repairing it.
If the auto insurance company determines that the car has been totalled, it will write a check for the current cash value of the car, less the amount of the policy deductible. This is the amount the policyholder is responsible for paying out of pocket toward the cost of settling a claim.
To decide what the amount of the payout should be when a car is totalled in an accident, the insurance company looks at how much it would cost to buy the same make and model vehicle in similar condition and with the same mileage. This figure is used to determine its current cash value. If there is an outstanding loan on the vehicle, the financing company is entitled to receive this amount from the insurance settlement.
Gap Auto Insurance Coverage
A car depreciates in value starting with the time it is driven off the dealer’s lot. It’s possible for a vehicle owner to owe more on the car that it is worth. If the car is totalled in an accident, the insurance company’s payout may not be enough to pay off the outstanding loan.
To avoid being in a position where a vehicle owner has to continue making payments on a vehicle he or she can no longer drive, gap insurance coverage is available. Adding this type of coverage to a policy means that the insurance company will pay the difference between the amount the car’s cash value and the amount the owner owes on it.