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

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If your car is totaled and you don’t have gap insurance, you are responsible for paying the lender the full amount owing on your loan.
Getting in an accident can be a traumatic experience. And if you’re upside-down on a car loan and don’t have gap insurance, it’s even worse. That’s why it’s so important to ensure that you have the right coverage on your car insurance policy.
Thankfully, car insurance comparison app Jerry has you covered! Jerry is your pocket insurance broker that can help you find affordable coverage for all your insurance needs—including gap insurance.
And for everything you need to know about what to do if your car is totaled with no gap insurance, read on.
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What does it mean if your car is totaled?

Insurance companies determine that your car has been totaled when it costs more to repair your car than your car is actually worth.
This means that the damage done to your car has surpassed a certain percentage—usually 65% to 80%—of its market value.
If your car is totaled, your insurance company won’t pay to repair it. Instead, they’ll pay you the actual cash value (ACV) of the vehicle right before the accident, minus your collision deductible. Since the ACV includes depreciation, you typically won’t get enough of a payout to repurchase the car.
If you’re not yet finished paying off the car loan, the insurance payout will usually go directly to your lender.
Key Takeaway In the event of a total loss, your insurance company will pay you the actual cash value of the car.

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

If you total your car in an accident before you’ve finished paying off the loan and you don’t have gap insurance, you will owe your lender money.
Take, for example, the following scenario:
  • Amount owed on your car loan: $25,000
  • Deductible: $1,000
  • ACV payout from your insurance company: $20,000
  • Money you owe after the accident: $6,000
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What happens if you don’t have gap insurance and your car is totaled?

Since your insurer will only cover the ACV of the vehicle, you’ll end up owing the difference on an upside-down car loan —in the above example, a whopping $6,000.
A gap insurance policy will cover the difference between the ACV payout and what you still owe on your total loss vehicle loan. It might even cover your deductible, too!
Key Takeaway Gap insurance is particularly important if you have negative equity or owe more on the car than it’s worth.

What happens after your car is totaled

If your car is totaled, it will be given a salvage title and you won’t be able to drive it. Some people sell totaled vehicles to rebuilders or salvage yards, though the salvage value might not be much.

Do you pay insurance on a totaled car?

No, you do not need insurance for a totaled car since it cannot legally be driven. You will need to discuss this issue with your insurance company to ensure you won’t have any gaps on your insurance record, though.

Can I keep my totaled car?

Some states will allow you to keep your totaled car, but it will be given a salvage title. A salvage title means that the car needs to be repaired to be legally driven again. If you’re considering keeping your totaled vehicle, let your insurance adjuster know as laws vary by state.
Key Takeaway You won’t need to pay insurance on a totaled vehicle and you may even be able to keep it, if you want—but it can’t be driven unless it’s repaired by a professional.

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.
Some states have a 30-day limit on requests for reimbursement, so be sure to ask your insurer for this money as soon as possible.

Finding the right insurance coverage

When you’re ready to find insurance for your new vehicle, comparison shopping is your best bet to find the right coverage at the cheapest price.
If you’d rather leave the hard work of gathering quotes to someone else, use Jerry. This free app can collect quotes from up to 45 top insurance companies in seconds! And after you find the one you like, Jerry will finalize it for you and cancel your existing policy.
Best of all, Jerry is 100% free to use.
“I am so glad that I found the Jerry app. Over the last 3 years I have had a couple of accidents along with some citations. My insurance company told me when my policy renews my new rate would be $404 a month! After finding Jerry my insurance is a little more affordable — they saved me over $200 per month on my policy!! Thanks, Jerry, you just made a lifelong customer outta me!” — Satisfied Jerry user
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Is gap insurance required by law?

No, drivers are not legally required to purchase gap insurance—but if you owe more on your car than it’s worth, getting gap insurance is a good idea.

Do I still have to make payments on a totaled car?

You are legally obligated to make payments on your totaled car until the car is completely paid off. If you have a gap insurance policy, you’ll receive a payout for the amount you owe so that you don’t have to continue making monthly payments.

How can I check my car’s actual cash value (ACV)?

The actual cash value is determined by the market. The value of your car will vary depending on its condition and mileage. Kelley Blue Book is a great resource for helping you figure out your car’s ACV.

How do I know if I have gap insurance?

If you are unsure of whether or not you have gap insurance, review your insurance policy or speak with your insurance agent.
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