Who Gets The Insurance Check When A Car Is Totaled?
In the insurance business, when a car is considered a total loss, this is an indication that the expenditure needed to repair the car is often more than the actual cash value of the car.
In such cases, the insurance company is left with no option other than writing off the car as a total loss and presenting the owner with a check. Who gets the insurance check when a car is totaled is something that the car owners need to know, especially when there are loans or leases.
This guide will explain the process in an easy-to-follow format to ensure proper comprehension.
Who Gets The Insurance Check When A Car Is Totaled?
The person who receives the insurance check is determined by various factors, based mostly on whether the car was financed, leased, or bought.
1. Financed Cars
If your car is financed, this means that the bank holds a security interest in the financed car, and this gives them a lawful right to the insurance funds to recoup their dues.
Scenario 1: ACV is Greater Than the Loan Balance
- If the ACV is higher than the rest of the owed amount on the loan, the insurance company will first reimburse the lender.
- The rest of the money will be returned to you, the policyholder.
Scenario 2: ACV is Less Than the Loan Balance
- For instance, you may get an ACV that is less than the remaining balance on your loan; this means that you have to pay the loan balance.
- ACV will be paid to the lender directly by the insurance company and the remaining amount you will have to pay out of your pocket unless you have a gap insurance.
Gap Insurance:
- This is additional coverage that pays out the difference between the ACV and the loan balance outstanding. This is especially beneficial if you find yourself indebted more than the market value of the car you borrowed.
2. Leased Cars
With leased cars, the owner is referred to as the ‘lessor’ and you pay a monthly amount for the permission to use this car.
- This will mean that the insurance company will likely pay the settlement amount to the leasing company.
- You may be liable for the other costs of the lease as outlined in your lease agreement, depending on the agreed settlement amount.
3. Owned Outright
Hence, if you own the car without a loan or lease balance, the insurance check will be negotiable in your name.
- You can negotiate to pay the debt estimate as a down payment for a new car or however, you wish.
- However, one has to understand that the total settlement amount would be the ACV, which may not be adequate to purchase a brand-new car depending on the vehicle’s state’s rate of depreciation.
Total Loss and Actual Cash Value (ACV): A General Perspective
Total Loss
A car is considered as total loss if the expense incurred in the repair is more than a pre-estimated percentage of the market value of the car. This percentage differs from state to state and also depends on the insurance company, but it ranges from 70-75%.
Actual Cash Value (ACV)
This is the amount you would get if you were to sell the car immediately after the accident due to its value having been reduced by depreciation. It is the value you would likely to receive if you sold the car in its current state before the accident happened.
Actions to Take If a Car is a Total Loss
- Filing a Claim: When an accident occurs, one has to open an insurance claim with their insurance company. They will evaluate the extent of the damage on the car and see whether it is economical to repair it or not.
- Assessment by Insurance Adjuster: An insurance adjuster will assess the car and then fix the amount of money to be paid based on the car’s age, mileage, and the conditions of the car before the accident.
- Settlement Offer: If the car is a total loss, the insurance company will offer compensation based on ACV of the vehicle.
Key Considerations
- Negotiating the Settlement: If the insurance company is low in the ACV that it is willing to pay for your car, you have to negotiate for more. Include documents that will prove that your car is in bad shape or has become less valuable, for instance, receipts for recent mechanics’ bills or purchase receipts of new car parts.
- Documentation: It is advisable to document all conversations you have with the insurance company, estimates from the car repairers, or any other material that relates to the case. This will help in case of any misunderstandings arising in the course of undertaking the business.
- Gap Insurance: If you’re leasing or paying for an automobile with a loan, you may consider acquiring gap insurance to shield you from having to pay more than the car’s value in case of a complete write-off.
- Replacement Value Coverage: There are certain insurance plans that give out the total loss value or the amount that it will cost to replace your totaled car with an identical new model instead of the ACV. This option can be slightly costlier, but it offers the users a better level of protection.
- Deductibles: Just note that the final settlement will be arrived at after deducting the amount of your policy’s deductible. For instance, with an ACV of $10,000 and a deductible of $500, the insurance provider will only pay $9,500.
- State Laws: Even the total loss thresholds as well as the insurance regulations, differ from one state to another and therefore, it is important to be familiar with the laws that apply in one’s state.
Conclusion
It is crucial to know who gets the insurance check when a car is totaled so that you can know how to handle such situations well.
Whether you are financing your car, leasing, or outright purchasing, understanding the general process and some of the things you need to look at can help you be ready and be in a position to make the right choices.
It is always important to look over the specifics of the insurance policy for the car you are purchasing, as well as other options, such as gap insurance, in case the vehicle is a total loss. One thing that makes it easier to handle the consequences of a car totaled is having the right information and preparations in place.
FAQ
This check is paid directly to the lending company in order to cover the remaining balance of the loan. If the settlement is more than the loan amount, then you get the difference.
If you think that the amount of the settlement is too low, you can try to negotiate. Back your claim by presenting documents like records of recent repairs and upgrades and the current market value of similar vehicles.
The insurance check will be given to the leasing company because the car belongs to them. Despite this, you may still be required to make other payments or incur other fees when using the settlement to clear the remaining lease balance.
If you own your car with no loan balance, then the insurance check is made payable to you. You can use the settlement amount to buy a new car or for any other purpose that you may wish.
If the settlement is not for a new car, then you are required to make up the balance out of your pocket. Either use the settlement amount as the initial payment and pay the balance in installments or search for a cheaper option. Replacement value coverage can assist with paying for a completely new car.
