When Your Car is Totaled and You Don’t Have Gap Insurance

If your car is totaled and you don’t have gap insurance, you’ll be responsible for paying any remaining loan balance not covered by the insurance payout.
Written by Pat Roache
Reviewed by Jessica Barrett
If you total a financed car without
gap insurance
(which stands for Guaranteed Asset Protection), any insurance payout will be limited to the actual cash value (ACV) of your car—which may not cover the remaining balance on your
car loan
or lease.
  • If you total a financed car without gap insurance, the insurance payout will be limited to the actual cash value (ACV) of the car, which may not cover the remaining balance on your loan.
  • Gap insurance covers the differences between the ACV payout and the remaining balance on an upside-down car loan, making it a worthwhile investment for as long as you owe more than your car is worth.
  • Without gap insurance, you can still file car insurance claims on collision, comprehensive, liability, or uninsured/underinsured motorist policies, depending on the circumstances.
  • Your insurance provider will usually take possession of a totaled vehicle to sell it for salvage, but some states allow you to keep a totaled vehicle.

What to know about gap insurance

Gap insurance is an optional type of coverage that pays the difference between the actual cash value (ACV) payout from a total loss insurance claim and any remaining balance on an
upside-down car loan
Keep in mind: Some gap insurance policies will only cover up to a certain percentage of the actual cash value of your vehicle, while others may even cover your deductible! 
The bottom line: Gap insurance is a worthwhile investment as long as you owe more than your car is worth.
Of course, you’ll need to purchase gap insurance coverage on your auto insurance policy before the covered incident to receive the extra payout. You can use a tool like
Kelley Blue Book
to estimate the value of your car and determine if gap coverage is right for you. Always check the fine print of your policy or talk to your insurance agent to get clear on what and how much your gap insurance covers.

What happens if I don’t have gap insurance and my car is totaled?

If your car is totaled and you don’t have gap coverage, you’ll be left owing any negative equity on your car’s loan balance without help from your insurance provider.
Remember, though, that you don’t need gap insurance to
file a car insurance claim
for a financed car. Consider the following types of coverage and how they may be able to help you receive a payout for a totaled vehicle:
  • Collision insurance
    : You can file a claim through your collision coverage if your car is totaled in an at-fault accident and you’ve chosen to add this to your policy. You’ll receive a payout for the actual cash value of your car minus your deductible.
  • Comprehensive insurance
    : Comprehensive coverage will payout for a totaled vehicle after covered events that are generally out of your control, like natural disasters, severe weather, car theft, animal collisions, and more. This is also an optional type of coverage and requires you to pay a deductible first.
  • Liability insurance
    : You can file a claim through another driver’s
    property damage liability coverage
    if they were at fault in the accident. Most state laws require drivers to carry this coverage, but you won’t be able to claim more than the liability limit on the other driver’s policy.
  • Uninsured/underinsured motorist coverage
    : Another mandated coverage in certain states, this type of coverage will come in handy if you’re ever in an accident with a driver who lacks liability coverage or doesn’t carry enough to cover all of your damages. It can also be essential when trying to claim damages after a hit-and-run.
In some cases, these coverages may even be enough to cover all of your costs. You only need gap insurance if your loan balance exceeds your totaled car’s value. If you’ve had your financed car for a while, there’s a good chance that you’ve paid off enough of your loan amount to catch up with the car’s actual cash value.

What does it mean if your car is totaled?

Car insurance companies will declare a car a total loss after an auto accident or other covered incident if the cost to repair it is greater than the vehicle’s actual cash value.
Typically this means that the damage done to your car has exceeded a certain percentage of its market value—around 65% to 80%, depending on the provider. Rather than pay for an expensive
car repair
, an insurance provider will pay you up to the
determined value of your totaled car
(minus any applicable deductibles) right before the incident that wrecked it.
Unfortunately, since the actual cash value of the car will include depreciation, your payout for a totaled vehicle likely won’t cover the cost to repurchase a similar model. Not to mention, the payout will typically go straight to your lender if you’re still paying off an auto loan.

What happens if your car is totaled before you’ve paid it off?

If you
total a financed car
, you’ll owe your lender any remaining loan balance that isn’t covered by the insurance payment for the market value of the vehicle.
Take the following scenario, for example: A flood ravages your financed car while it’s parked on the street and your insurance adjuster declares it a total loss from the
water damage
. You’re left dealing with the following values:
  • Current loan balance: $25,000
  • Deductible: $1,000
  • Insurance payout for your car’s ACV: $20,000
  • Amount you owe: $6,000
After you’ve paid your
comprehensive deductible
to your auto insurance company, you’re still left owing $5,000 to your lender in negative equity. That means you’d still be making monthly loan payments on a car you can no longer drive.
This is where you’d need gap coverage to avoid major out-of-pocket expenses.

What happens after your car is totaled?

After you file an insurance claim for a covered event, your car will be towed to an approved repair shop for inspection. 
  • If it’s deemed a total loss, your insurance adjuster will issue a salvage title that deems it illegal to drive and a check for the car’s ACV. 
  • If there is a
    lien on the car
    , then the check will be issued to the lienholder.
Typically, the insurance company will then sell your totaled car to a salvage yard or auction to recoup some of the payout. If your car is not covered for the damages it’s sustained, then it’s up to you to repair the car, pursue a salvage title, or sell your junk car for cash.

Can I keep my car after it’s been totaled?

Some states allow you to
keep a car that is a total loss
, but it must be given a salvage title. If you choose to keep a totaled car that’s covered by your insurance, you’ll receive a payout for the salvage value—the amount that your insurance would have received if sold to a salvage yard.
You’ll need to
remove the salvage title
by getting the car repaired and properly inspected if you ever plan on driving it again. This may be a worthwhile option for an older car that’s lost a lot of value but has been well-maintained. 
A simple paint job could render an older car a total loss in the eyes of your insurance company, but that doesn’t mean it’s not worth saving.

Do I need to pay insurance on a totaled car?

You do not need insurance for a totaled car, but it’s up to you to
cancel your car insurance
or remove the car from your policy—your insurance provider will not automatically do it for you.
If you have multiple cars on your policy, then you can contact your insurance agent and remove the car from your policy without delay. Make sure to follow up with your state to surrender plates if required and update your tax records.
If your totaled car is the only vehicle on your policy, then you may want to keep the policy open. Canceling your car insurance now could result in an
insurance lapse
—and even though your car isn’t driveable, this could result in future insurance rate increases.

Does car insurance cover sales tax to replace a totaled car?

Many states require the insurance company to pay the sales tax on a new car after you’ve totaled your vehicle. In some cases, the insurer might reimburse you for the sales tax paid on the totaled car rather than on a new vehicle. 
Check with your provider to see if your state’s mandates for sales tax, title, and registration fees are included in your totaled car’s ACV payout.
Some states have a 30-day limit on requests for reimbursement, so be sure to check with your insurer as soon as possible.

How to find the best rates on gap insurance

Many lenders and car dealerships will require you to buy gap insurance and
full-coverage insurance
when you finance a new car. Premiums on this level of car insurance coverage can be much higher than liability-only policies, so many drivers may feel like they have no choice but to skip these coverage upgrades.
If you’re looking for ways to keep your insurance costs down without sacrificing coverage, try using
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