Your car insurance policy is meant to provide some peace of mind following a claim. Frequently,  your insurance provider will consider your car totaled should the cost of repair outweigh the car’s value. Moreover, you’ll want your policy to pay out and set you up to purchase a different vehicle and get back on the road. However, your situation might not work out that simply, leaving you in debt for thousands of dollars. 

Depending on a few factors, a totaled car could mean considerable unresolved debt after a crash

Comprehensive car insurance can come in handy after a crash, especially compared to lesser policies like liability coverage. However, your car insurance policy might not cover everything you owe on your totaled car.  

For starters, vehicle owners could be looking at a “total loss threshold” or a “total loss formula” (TLF) when dealing with a totaled car. According to Bankrate, a total loss threshold refers to when “a vehicle’s total loss value reaches a specific percentage of the car’s market value.” Each state has a threshold that dictates when your car becomes a total loss.

For instance, if your state’s threshold is 70%, your car is totaled when damages reach 70% of its market value. On the other hand, a TLF incorporates your vehicle’s salvage value in the decision to declare the vehicle a total loss.

Tragically, an outstanding loan or lease could leave drivers holding the bill for thousands of dollars. Should you owe more than the payout on your total loss vehicle, you may be responsible for the remaining value, per Douglas & London.

Furthermore, the remaining balance on your vehicle could easily leave you in debt for a vehicle you don’t own anymore. For example, if your vehicle exceeds your state’s total loss threshold, your provider will write it off. Let’s say the depreciated value of your vehicle is around $15,000 and you owe $22,000. You’ll likely be on the hook for the difference. Of course, drivers can opt for gap insurance to cover the extra value on top of the vehicle’s market value.