If your vehicle got a heavy damage accident, and unfortunately your vehicle and your car insurer declare that your car has been totaled, your insurer will receive a total-loss payoff settlement. Remember that will only happen if you bought a comprehensive collision damage policy.
What is a loss calculation?
A loss calculation comes from the calculus of your totaled car repairing bills percentage will cost more than the value of the car itself, this is also named ACV. Actual Cash Value is a euphemism to say what your car is worth at the time of loss.
How does your car insurance company calculate the total loss value?
This can be very hard to accurately price it without some help. Each insurance company but also, each state has its own way to calculate this. But in most cases what determines the actual cash value is your vehicle’s year, make, model, mileage, physical wear or tear, and the damage caused by the accident.
Example
Say your car is worth $25,000, and you had an accident where your vehicle repair bills are worth $20,000, that means your car repair bills cost 80% of your Actual Cash Value. In states where your car is totaled threshold below 80%, your car will be considered totaled.
Let's say you have a new brand car in exceptionally good condition, which means your Actual Car Value will be higher compared to an old car. The second you drive your car off the dealership it begins to depreciate its price, and it will continue over time. Your car depreciates 20% during the first year, and 40% further over the next 4 years.
If your Actual Car Value depreciates faster than your car’s loans, you should consider getting the shortest time available for your loan you can afford when you’re going to buy a vehicle. This way you will compensate for the car depreciation with your car loan.
What happens if I have got GAP insurance?
GAP stands for Guaranteed Asset Protection, this is an optional car insurance extra. Gap insurance is designed to cover the difference between what you owe on your loan or lease and what your car is worth, up to the limit of your policy. It's really important that you buy GAP insurance due your car loses its ACV immediately after leaving the dealership.
What does GAP insurance cover and what not:
All GAP insurance policies cover: Fire, flood, theft, accidents, tornado, and vandalism
All CAP insurance policies do not cover: The repair of your car, the cost of your rental car, downpayment of a new car, debts due to financial hardship, extended car warranties for used or new cars, or the reduced value of your vehicle after the crash.
What happens if your loan is over the precious into your current vehicle?
If you rolled a car loan with a very high pricing or a very large loan time, or a high interest for your loan, then you will enter into negative equity on your loan. That means your loan is way more than the current car value, and your insurance total loss payoff won’t cover the balance of your loan.
What happens if your car loan includes an extended warranty?
If you bought an extended warranty option for your car’s loan, that means your loan includes more than the cost of the loan of your car.
Also, you may be eligible for a partial refund on your insured warranty if your car has been totaled. You can check this by contacting the dealership you bought your warranty.
Conclusion
Your car insurance company will declare your vehicle as a total loss when the repairing costs exceed the actual car value (ACV) or a percentage of it.
You are the only one responsible to pay the rest of your car loan if your total-loss payout doesn't cover the full balance.
I recommend you get GAP insurance before that happens. This way you will be kept out of any financial trouble if your car gets totaled.
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