a mobile phone with a graphic stating car insurance

If my car is totaled, will insurance pay it off?

may wonder what to expect when your car is totaled. This happens when the cost to repair a vehicle exceeds the amount it was worth prior to any damage. The responsible insurance company provides payment equal to the car’s value before the damage occurred. Unfortunately, that may not be enough to pay off an existing loan or buy a new vehicle outright.

How does an insurance company decide when a vehicle is totaled?

The following terms help to explain the process insurance companies use to declare a vehicle totaled:

  • Actual cash value (ACV) – the value of a car before it was damaged
  • Cost of repair – the price to return a damaged vehicle to its former state.
  • Total loss threshold – the ACV minus the repair cost determines the total loss threshold or the point at which an insurance company considers a vehicle totaled.
  • Total loss is a vehicle that is damaged beyond repair or would cost more to repair than the car is worth

What happens if I still owe a car loan and my car is totaled?

When your vehicle is declared a total loss, and you carry a banknote, the responsible insurance company will send a check for the actual cash value directly to your lender, minus any deductibles you owe. When a car accident occurs, and another driver is at fault, you should provide that driver’s insurance company with your lender’s name and contact information. 

A vehicle’s actual cash value may not cover your loan’s full balance. New cars depreciate quickly, so their value may be less than what is left on a recent auto loan. You are still responsible for paying off your loan, even if the car is inoperable or you disagree with the insurance company’s assessment.

What can I do to avoid paying on a loan for a totaled vehicle?

You may find yourself paying for a vehicle you can’t drive and unable to afford a replacement. One solution is to purchase gap insurance, designed to cover the difference between the balance of your loan and the amount an insurance company decides a vehicle is worth. Gap insurance is a particularly good  idea when:

  • You put down less than 20% on the vehicle
  • You financed your loan for 60 months or longer
  • The vehicle is less than two years old

Make sure you have the correct insurance coverage as well. If you are at fault, your insurance company won’t pay anything toward the cost of your totaled vehicle unless you have comprehensive or collision insurance. Comprehensive coverage protects you against damage from theft, weather-related events, fire, and collisions with animals. Collision insurance covers accidents with other vehicles or structures. Both pay out actual cash value, regardless of who was at fault.

What if I disagree with the insurance company’s decision?

If you disagree with the amount an insurance company offers for your totaled vehicle, you can attempt to resolve the discrepancy by talking to the insurance adjuster. You may also request an independent appraisal. The insurance company will hire an appraiser as well, and a third appraiser will serve as the tiebreaker between the two.

In the event that the dispute can’t be resolved, you can file a complaint with the Texas Department of Insurance or hire an attorney to represent your interests with the insurance company.


Morris & Dewett provides this information to the public for general education and interest. The firm does not represent clients in every topic discussed in legal & injury news. The information is curated and produced based on trends in law, governance, and society to present relevant issues to the general public. Every effort is made to provide accurate information. Do not make any decision solely based on the information provided, please seek relevant counsel for each topic area. Consult an attorney before making any legal decision, consult a doctor before making any medical decision, and consult a financial advisor before making any fiscal decision. If you have any legal needs that we can assist you with, please do not hesitate to contact us.

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