Does auto comprehensive insurance pay off and replace auto?

Answer 1

Not as such. What you owe on your vehicle has nothing to do with the auto insurer's liability, except to the extent that the lienholder is usually named on the policy as a loss payee.

If your vehicle is deemed a total loss in a covered incident under comprehensive such as a fire, theft, etc. then the insurance company will pay per the terms of the policy. As stated in the policy, the insurance company has the option to repair, replace, or pay the actual cash value of your vehicle. Actual cash value will be paid if the reasonable cost of repair exceeds a stated percentage of the actual cash value of the vehicle. That percentage is usually set by state law. Actual cash value roughly equates with market value of a similar vehicle in similar condition and similarly equipped.

If the vehicle is declared a total loss, the insurer will pay the lienholder first and if the car is worth more than the loan balance the remainder will be paid to the insured. If the loan balance is more than the value of the vehicle, and thus, what the insured pays, the insured is responsible for the balance. then you have a problem. The company will pay the entire amount to the loan company but then you will still owe the balance to the loan company or bank.

One of the ways to protect yourself from being responsible for the difference between what the insurer pays and the balance on the loan, is through GAP insurance. It is a separate policy, for a separate premium. It pays the difference between the insurance settlement and the amount remaining on the loan. It is usually offered when the car is purchased and financed, but can generally also be obtained after the fact from a property and casualty insurance agent.