Can the insurance company refuse to pay out the equivalent of the amount owed on the car after an accident?

April,

The above answers are correct, but you have options.

If it were my claim, the larger the difference between the value of the car and the amount of the loan, the more my neck would hurt.

If your in laws have gap insurance on their own policy, they can have the other guy's insurer pay the value of the car, and have their own insurer pay the difference.

Don't forget; there is no contract between the other guy's insurer and your in laws. The only terms that bind them are the terms they agree to.

The insurance company is simply buying a name on a release. If your in laws necks hurt enough, they can walk away with the right amount to pay off the loan.

Yes it is allowed. Your in-laws are "upside down" on their loan at this point. They owe more than the vehicle is worth. Full coverage means you have insurance to pay for the damages to your vehicle, it doesn't mean the company pays whatever you want even if it's too much or not related. They are only required to put you back into the condition you were in before the loss. If you had a car worth $5,000 that's what you get. If you owe $6,000 on it that's fine, but to pay you $6,000 would be bettering you, and that's not what insurance does. And in spite of what another person said, if the other person is at fault, the same deal applies. They don't have to have a contract with you to pay only what the vehicle is worth. This is the way insurance works. It's a concept of indemnification- returning you to pre-accident condition. And don't even think about making up an injury claim to cover the difference (I know you didn't say it, but someone suggested it) because insurance companies see right through that and if any time has gone by they won't consider an injury claim after a gap from the accident to the treatment received.

A lot of people roll what they owe on the other car into the next loan for the next car. I think that's crazy, but for some people who can't handle it any other way, that's an option if you use the same finance company. These days people buy gap insurance which pays the difference between what you owe and what insurance will pay (the value). Have your in-laws look into that.

There's nothing more exciting or memorable for a vehicle owner than the day he or she acquires a brand new vehicle. Unfortunately, if the vehicle is in an accident and a total loss occurs, this great day can come to a screeching halt. Unexpected problems arise and there is often a lack of funds to cover this unforeseen loss. In addition, when the insurance claim is settled, vehicle owners are faced with the reality that they owe more on their auto loans than they were compensated by their insurance companies.

An article published by the Wall Street Journal (October, 2002) pointed out that an automobile valued at approximately $19,440 (sticker price) and traded within two years will only retain a trade-in value of $8,302, which indicates a 57% depreciation. Statistics have shown that 40% of the time a consumer trades in a car they owe more than the car is worth. This results from the fact that the loan amount on most cars decreases only slightly in the first two years and is known as being "upside down".

The only way to avoid this situation is by getting gap insurance with your auto insurance policy. GAP pays the difference between market value & the amount of the loan.

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Ron @ InsureMe

The amount owed on the vehicle has nothing to do with the value of the car. The insurance Co. is only required to pay the worth (NADA book price) of the vehicle, minus the deductable. If (of coarse) they had full coverage on the vehicle. You should be able to go back after the other drivers insurance for your deductable,provided your in-laws were not at fault. Good Luck

Does ANYONE ever read an insurance policy? It's not the fault of an insurance company if your in-laws made a bad deal on their car. Auto insurance is NOT replacement cost coverage; it pays actual cash value (ACV) of the vehicle PRIOR to the loss based on options, condition and mileage. If you hit someone's car and totaled it but had to pay for it yourself would you offer to pay $4,000.00 more than what a replacement car could be purchased for? Tell your in-laws to stop whining and either buy gap insurance or drive a paid-for car.

Of course. Insurance covers your loss. Your loss is what the car was worth at the time of your loss, not the replacement value nor the amount still due to the finance company. If they wanted something to pay the car off in the case of loss, they should have opted for Gap, or Vendor's single interest on the vehicle. The point of insurance is to protect you if you have harmed someone else through your actions, or in the case of full coverage, to cover your loss. Again, loss is defined as "What the vehicle is worth at the time of loss, adjusted for condition." and nothing else.

Insurance companies only have to pay out what the actual value of the vehicle is in a total loss situation. With all the zero down and long term financing out there these days, most people are up side down on their vehicles. I.E. they owe more than they are worth.

That's way there is GAP insurance available, to cover the difference in what the car is worth vs what is actually owed on it. On those long term, zero down loans it's worth the money invested.

An auto policy pays actual cash value of the car at the time of the loss. The other posters are correct about gap insurance. Sometimes the car dealer will sell this coverage with the loan. Check there.

Yes, depending on what your insurance is for / on. If the insurance was on the car and not the loan for the car, then they are only obligated to give you an amount that would hold up as fair market value for a car of that age and type. If your loan had insurance on it, then it will cover a total loss. If you are upside down on a car loan, this is good to have.

The insurance company can do whatever they want to be with.They are going to go by blue book value on the car and whatever that is that's what they are going to pay.They probably owe more than what the vehicle is worth because of finance charges.Insurance is a gamble.

Of course. What is owed on a car and what the car is worth are two very different things. What is owed is between the owner and the finance company. It has to do with the deal they made and the payments that have been made on it. Sometimes people write bad deals. (quite often)