QuestionI was in an accident where I was the only one invovled. After my insurance company looked at my car they totaled it claiming is would cost more to repair than the car is worth.
I still have a loan on my car. In fact, it's an upside down and the amt the insurance company is offering will not pay the loan off. My question is does the insurance company have to pay the settlement to the lien holder or can the check be written out to me?
AnswerThe insurance company has a legal obligation to pay the lien holder. Not only is it a legal obligation, but it is also the only way that they can get the title to the car so the salvage can be disposed of.
I'm sorry to hear about your situation. This is becoming a very common problem as finance companies/banks/dealers will write loans all day long for more than a vehicle will be worth in a year, yet vehicles still depreciate at the same rate.
Depending on the finance company, you may have the option of what is called an "exchange of collateral" where they may be willing to keep the existing loan in place in exchange for title on a similar vehicle that would be purchased with the insurance settlement. This is only done with the permission of the lien holder.
My only other advice is to purchase what is called "Gap" insurance on any future car loans that will cover the negative equity in the event of a total loss.
