If your car is totaled out and you owe more than the insurance company is willing to pay you for it, who is stuck with owing the difference on your loan? The short answer is you are stuck owing the difference, but the long answer is even more frustrating.

If there is one law that is completely broken, it is this one. The insurance company is only required to pay a fair market value of what the car is worth at the exact time of accident. This does not take into consideration that had you not been involved in a car accident, you would have continued to make payments and at some point, you would no longer be upside down in your vehicle. Everyone knows that your car is not worth what you paid for it during the first few years of ownership, but the idea is to hang onto a car and at some point, if you hang onto it long enough, you will no longer owe more than the car is worth.

Sure, you can purchase GAP insurance, and under the current system that is probably a good idea, but can’t we come up with a better solution? What if we tell the highly profitable insurance companies that they owe 110% of the value on a totaled out vehicle? After all, they should be the ones penalized for totaling out a vehicle, not the consumer.

Unfortunately, we are stuck with our current system for car accidents. Under a perfect system, we wouldn’t have to owe anything on a totaled out vehicle. It would just be totaled out and the loan completely paid off. Until that day comes, be aware that you will be on the hook for owing the difference between the value of your car and your loan amount should your car be totaled by the insurance company.