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Group term and voluntary term life insurance are both offered by employers and other organizations, providing convenient and low-cost baseline coverage. But depending on the employer, coverage may not be as comprehensive as you need.

Let’s explore what group term life insurance is, how it’s different from voluntary term, and who should take advantage of these policies. You’ll also find out what portion of group term life insurance benefits is taxable and whether premiums are tax-deductible.

Group Term Life Insurance, Defined

So, what is group term life insurance exactly? Term life insurance covers a policyholder for a set amount of time, hence the “term” part. (This roundup of life insurance terminology can be helpful for the uninitiated.) It pays a death benefit to beneficiaries, usually family members or other dependents, if the insured person dies within that time frame.

Group term life insurance, meanwhile, is simply a policy offered to a group — either by an employer, trade union, or other organization — often at no cost to the employee. Group life insurance is sometimes referred to as employer-provided life insurance.

How Group Term Life Insurance Works

Group term life insurance coverage usually covers the timeframe of your employment. (When it’s not purchased through an employer, terms range from 10 to 30 years.) All premium payments and death benefits tend to be fixed. If you live past the end date on the policy, no benefit is paid, and the premium payments are forfeited.

This type of policy is sometimes referred to as a “pure” life insurance product. That is, it has no cash value, while other types of life insurance do.

In group policies, many employers pay for baseline coverage for the employee, who pays nothing. Additional term life policies may be available at an affordable rate to cover your spouse, child (learn why life insurance for children may be necessary), or other dependent, with premiums deducted from payroll. Since an employer or similar entity is buying the coverage for many people at once, their savings are passed along to the members.

Recommended: Why Is Life Insurance Important?

What Group Term Life Insurance Typically Covers

Often, group policies pay out the equivalent of 1-2 years’ salary. Group term may cover fewer causes of death than other policies, but it generally includes critical illness. Death by self-inflicted wounds may be excluded for the first two years of the policy.

Pros and Cons of Group Term Life Insurance

Group term life insurance has its advantages and disadvantages.

Pros of Group Term Life Insurance:

•   Cost: Baseline policies are often free.

•   Availability: There’s usually no medical exam or other strict requirements.

•   Simple application: Often, you just check a box or sign a form.

•   Coverage when you need it: Families have some coverage in the event their main source of income is lost.

Cons of Group Term Life Insurance:

•   Low payout: Coverage is typically on the low side, equivalent to 1-2 years’ salary at most. Experts typically recommend that life insurance cover 10 times your salary or more, depending on your financial obligations.

•   Lack of choice: A single policy is typically selected by your employer to cover all members, regardless of your situation.

•   Non-portable: If you leave your job, you lose your coverage.

Requirements of Group Term Life Insurance

Requirements are minimal and usually involve being a permanent employee. You may need to be employed for a certain period of time (say, 90 days) before qualifying. There is typically no medical exam required, but individual workplace requirements can vary.

Voluntary Term Life Insurance, Defined

Similar to group term life insurance, voluntary policies are offered by an employer or membership group. However, voluntary policies are entirely optional (i.e., voluntary) benefits you can purchase. Because your employer negotiates a group rate, it’s usually more affordable than purchasing online insurance yourself.

If you’re curious about non-employer-based policies, here’s a helpful look at how to buy life insurance.

As with group term, voluntary term life insurance has no cash value or options for investing your premiums. (Whole life insurance does have cash value. Here’s a good comparison of term vs. whole life insurance.)

How Voluntary Term Life Insurance Works

As with most life insurance, voluntary term pays out a lump sum to your beneficiaries if you die while the policy is in effect. Premiums are deducted from your paycheck as well.

Voluntary term life insurance coverage may be offered annually. You can choose to re-up, change, or cancel during your company’s open enrollment period. Keep in mind that rates go up over time, either annually or as you enter a new age bracket.

Recommended: How Long Do You Have to Have Life Insurance Before You Die?

What Voluntary Term Life Insurance Typically Covers

With voluntary term life insurance, you can select your amount of coverage, usually in multiples of your salary. The more coverage you select, the higher your premium will be.

Limitations may be set as to the level of coverage you can choose or the availability of certain riders, compared to individual life insurance. Coverage also varies by employer. However, your voluntary policy should have the same coverage options and exclusions as your group term policy.

For lower coverage amounts, no medical information may be required. Higher coverage amounts often require a health questionnaire or medical exam.

Pros and Cons of Voluntary Life Insurance

As you may have guessed, the advantages and disadvantages of voluntary term insurance are similar to those of group term insurance. However, they’re not identical.

Pros of Voluntary Term Life Insurance:

•   Low cost: While not free, premiums are normally more affordable than those for individual policies due to the employer’s group discount. You can learn about typical premium costs by looking at how much life insurance is.

•   No medical exam: No medical exam is required for less coverage. If you’re older or have health issues, you can usually get a better deal through voluntary term plans than on their own.

•   Simplicity: You just need to select the level of coverage you want.

•   More complete coverage: Because you can choose your level of coverage, payout benefits could cover loved ones completely in case of your death.

•   Portability: If you leave your job, you may be able to keep your coverage, but your premiums may rise significantly.

Cons of Voluntary Term Life Insurance:

•   Limitations: You’re limited to a single insurance company. There may also be limits to the level of coverage and available policy riders.

•   Short-term solution: If you don’t plan on staying with your company long-term, you may be better served by an individual policy.

Main Difference Between Voluntary and Group Term Life Insurance

Group term life insurance is typically free through your employer, while voluntary term is an optional benefit you can purchase at a reduced rate. Also, voluntary term insurance usually offers different levels of coverage, while group term insurance is provided at one level for all employees.

If you’re still not clear on the differences, this high-level introduction to what is life insurance may be useful.

Requirements for Voluntary Term Life Insurance

Like basic group insurance, requirements are minimal aside from a potential waiting period for new employees. There’s typically no medical exam required, but individual workplace requirements can vary.

Is Group Term Life Insurance Taxable?

There are two components to group term life insurance that pertain to taxes: premiums and payouts.

Are Group Term Life Premiums Tax-Deductible?

Life insurance premiums are usually not tax-deductible. The IRS considers such premiums a “personal expense,” though there may be exceptions for beneficiaries that are charitable organizations. (SoFi does not provide tax advice. Please consult with a tax professional before making any decision.)

Are Group Term Life Payouts Taxable?

The first $50,000 of payouts from group term life insurance carried by an employer is excluded from taxes. After that, the benefit is counted as income and subject to income tax as well as Social Security and Medicare taxes.

The Takeaway

Term life insurance typically pays out a lump sum equal to a multiple of your salary upon your death. It has no cash value or investment options. Employers, unions, and other organizations may offer group term life insurance as a free benefit, but you could upgrade your coverage with voluntary term life insurance at a low cost, deducted from your paycheck.

Voluntary term policies can be a valuable option if you’re an older employee or have health problems because premiums are low and a medical exam is usually not required. However, group policies can have limitations that make them less comprehensive than individual policies.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

FAQ

What are the disadvantages of group term insurance?

Coverage amounts tend to be much smaller than what experts recommend. You’ll need to use the insurance carrier chosen by your employer, and if you leave your job, you’ll lose the policy.

What happens to my group life insurance when I retire?

Retirees may have the opportunity to continue paying for their life insurance. Before you retire, explore your options, comparing costs and benefits.

Is group term life insurance the same as life insurance?

Group term life insurance is one type of life insurance that pays out a lump sum upon the policyholder’s death. It has no cash value, unlike whole life policies, which are another type of life insurance.

Photo credit: iStock/akinbostanci

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPRO-Q126-065

Gap insurance is additional coverage that drivers can purchase to pay off their auto loan after their primary coverage pays out for a totaled or stolen vehicle. This type of insurance is beneficial when a car’s depreciated value isn’t as high as the loan balance.

Gap coverage can be helpful and cost-effective, but it isn’t always worth it. We’ll discuss how gap insurance works, its pros and cons, and what it doesn’t cover.

What Is Gap Insurance?

Not everyone is familiar with gap insurance, since this car insurance term is only relevant to buyers of brand-new cars. It refers to coverage from an insurance agency or car dealership to pay your outstanding loan or lease balance if your car is totaled or stolen and you owe more than the car’s value.

Your insurance policy or lender might describe gap insurance as loan/lease gap coverage. Gap coverage is accessible only to a new car’s original owner or leaseholder. Although it is not required, many car owners who conduct personal insurance planning believe it’s worth the minimal extra cost.

Who Needs Gap Coverage?

A new vehicle will depreciate more than 40% in five years on average. Some cars depreciate more than others, especially luxury vehicles and SUVs. As a result, your car’s value can plummet during the first five years of ownership while your loan balance remains well above your vehicle’s worth.

How much car insurance you need is often based on how much you can afford. Gap insurance is particularly advantageous if you make a minimal down payment, since your loan amount will be higher. A car loan can take five years or more to pay off. The timeframe of the loan increases the chances of losing the car to an accident or theft, leaving you with an insurance payout based on massive depreciation.

Leasing a car presents a similar problem. Your insurance will cover only the car’s depreciated value. In case of loss, gap insurance can cover any additional amount you owe on the lease. Some lenders may require that drivers purchase gap insurance to obtain financing.

How Does Gap Insurance Work?

How car insurance works isn’t always intuitive. Let’s say you buy a new car for $35,000. You pay $5,000 down and take out a loan for the remaining $30,000. A few years later, your car is stolen, and you file an insurance claim. Your car is worth $20,000, but you still owe $25,000 on the car loan. After your policy’s $500 deductible, your insurance pays out $19,500.

At this point, you still owe your lender $5,500 for the auto loan. This is where gap insurance comes in. The policy pays your lender the remaining amount due, thereby erasing the debt.

How Gap Insurance Works After a Car Is Totaled

Here’s another example. Let’s say that your car gets totaled in an accident. A vehicle is “totaled” when the required repairs cost more than what the vehicle is worth. Your insurance company provides a payout for the car’s current value.

As in the case of theft, your insurance will send a payout minus the deductible (learn about the types of deductibles in insurance). But you’re still on the hook for the remainder of your car loan. Gap coverage relieves you of that responsibility, potentially saving you thousands of dollars.

Recommended: How Much Does Insurance Go Up After An Accident?

Pros and Cons of Gap Insurance

Gap insurance offers several benefits:

•   Coverage to satisfy your auto loan in full in the event of theft or total loss of the vehicle

•   Inexpensive with most insurance companies

•   Provides coverage if you can only afford a small down payment on a new vehicle

•   Is particularly useful for rapidly depreciating cars

However, it may not be worth it if:,

•   Your vehicle doesn’t end up getting totaled or stolen

•   It increases your insurance premium, which it will

•   You made a significant own payment on your car, shrinking your loan amount

•   You rarely drive

How to Choose the Right Gap Insurance

Most car dealerships sell gap insurance, but you’ll pay far less if your car insurance company adds gap coverage to your policy. Your gap insurance and comprehensive coverage will typically come from the same company.

Before purchasing comprehensive coverage for a new vehicle, ask the insurance company if it provides gap insurance. Some companies, such as GEICO and Farmers, don’t offer it.

Gap coverage from an insurance company costs about $60 annually. At a car dealership, you can pay up to $600 for a similar policy. Although you can add that cost to your auto loan, you’ll increase the interest you’ll pay.

The company you choose and the level of coverage you need will affect the price of your gap insurance.

When to Cancel Your Gap Coverage

Once you pay off your auto loan, there’s no reason to keep your gap coverage, as you won’t owe your lender anything if you total your car. However, even if you’re only midway through paying off your loan, canceling gap coverage might still make sense.

For example, assume you have $5,000 remaining on your loan. You look up your car’s estimated value on Kelley Blue Book and discover that it’s worth about $4,500. It may make sense to drop your gap insurance and risk the minor $500 financial hit if the car is totaled or stolen.

Selling or exchanging your car is another reason to cancel your gap insurance, but make sure your insurance covers your car until the day you sell it. Otherwise, an accident could cost you thousands of dollars.

If you do cancel your gap coverage, you may qualify for a partial refund. For instance, when you pay off your loan early, and the gap coverage was included in the loan, you can potentially request a refund of any prepaid premiums.

What Gap Insurance Doesn’t Cover

Gap insurance can be incredibly useful in certain situations, but there are expenses that the policy won’t cover:

•   Your comprehensive policy deductible

•   Down payment for a vehicle

•   Extended warranties

•   Late payments and related fees on your auto loan or lease

•   Security deposits

•   Lease penalties

•   Carry-over amounts from prior loans or leases

•   Credit insurance charges for your auto loan

How to Save Money on Gap Insurance

Gap insurance policies are usually affordable when purchased from a traditional or an online insurance company. But you can offset the extra cost by following these steps:

•   Shop around: Remember, your comprehensive, collision, and gap coverage usually come from the same company, but not all insurance companies offer gap coverage. Ask about gap coverage availability and pricing before picking a policy.

•   Look into discounts: You may be eligible for reduced car insurance rates if your projected mileage is low or you have a safe driving record. Learn more about how to lower your car insurance.

•   Sign up for voluntary tracking: Your insurance company may offer a lower overall auto insurance premium if you allow them to install a tracking device in your car. You’ll have extra incentive to drive sensibly if you’re saving money.

•   Pay annually or biannually: Monthly payments for auto insurance often cost slightly more. If you can cover the annual bill upfront, you’ll reduce the total amount you pay.

Is It Worth Getting Gap Coverage?

Because gap coverage is typically inexpensive, it’s often worth purchasing it if you have a new vehicle. It may save you thousands in the event of a bad accident or car theft. Plus, if you’ve recently received your license, purchasing gap coverage is part of the essential insurance tips for first-time drivers.

However, the lower your loan balance, the less valuable gap coverage becomes. Over the years, the gap between your loan balance and your car’s value can narrow.

The Takeaway

If you’re purchasing or leasing a brand-new car, you’ll likely find gap coverage worthwhile, especially if you made a minimal down payment on your vehicle. New vehicles depreciate rapidly in the first few years of ownership, potentially leaving the owner with a loan balance that’s higher than the vehicle is worth after an accident or theft. Auto insurance only pays out the vehicle’s market value, while gap insurance can save drivers thousands for only a few dollars a month. You can also cancel gap coverage if you no longer need it.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

FAQ

Does gap insurance give you money?

Gap insurance pays off your car loan after your main coverage pays you the actual value of your totaled or stolen vehicle. This is important because depreciation can result in a loan balance that’s higher than the vehicle’s value.

Do you need car gap insurance if you have full coverage?

Full auto coverage will pay out your car’s actual market value. However, since your loan balance may be higher than your car’s value, especially in your first few years of ownership, gap insurance is advisable on top of full coverage.

How long does it take to get a gap insurance refund?

After you cancel your gap coverage, your insurance company will send you a prorated refund. This refund will generally comprise the coverage you didn’t use.

Photo credit: iStock/ollo

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPRO-Q126-067

When you’re shopping for car insurance, how much is too much to pay? The answer can vary based on your driving record, age, car type, insurer, and even where you live. But knowing the average cost of coverage in your state can help as you’re comparing quotes. Here’s a look at average prices in New York and how different factors can impact how much drivers there pay for protection.

How Much Does Car Insurance Cost in New York?

Drivers in New York state pay an average of $3,096 per year for auto insurance, according to a 2026 U.S. News & World Report analysis of cheap car insurance companies.

Average Car Insurance Cost in New York per Month

The average monthly cost of car insurance in New York is $258. However, the amount you pay can vary by insurer, as the chart below shows.

Average Car Insurance Cost in New York by City

Your location can influence how much you pay for car insurance in New York state. That’s because when insurers are setting rates, they often consider the local volume of traffic, accidents, and crime. People living in cities tend to pay more for car insurance than those living in small towns or rural areas. But as the chart below shows, prices can also vary by city. Here are estimates for 10 of the biggest cities in New York, arranged from lowest to highest amounts:

Average Car Insurance Cost in New York by Age and Gender of the Driver

Your age can impact your premiums. Younger, first-time drivers, for example, often pay more for coverage because they tend to have more accidents than older, more experienced drivers.

Gender can play a role, too. In New York, women may end up paying less for car insurance than men because they tend to get into fewer severe accidents.

Average Car Insurance Rates After an At-Fault Accident

As anyone who has been in a fender bender knows, car insurance rates tend to go up after an accident. New York state drivers with a clean record pay around $3,096 per year for coverage. That amount rises to an average of $3,587 for drivers who have one accident where they were at fault.

But even traffic violations can cause prices to go up. A driver with one speeding ticket on their record pays an average of $3,553 for coverage, and one driving under the influence (DUI) offense causes rates to jump to an average of $4,478.

Recommended: Car Insurance Terms, Explained

Average Car Insurance Costs for Good and Bad Credit

Your credit score doesn’t just impact your ability to secure a loan. It can also play a role in how much you pay for car insurance in most states. According to an analysis conducted by LendingTree in December 2025, drivers with poor credit pay $4,140 on average per year for coverage – 95% more than those with good credit often pay for the same policy.

What Else Affects Your Car Insurance Cost?

Here are other factors that can cause your car insurance rates to go up — or down.

Marital Status

Married drivers may qualify for more discounts than single drivers, since insurers often place them in a different risk category.

Make and Model of the Car

Your car’s safety features, accident rating, size, and overall value can all affect your insurance rates.

Amount of Coverage

The amount of coverage you need comes down to a number of factors, including your state’s minimum car insurance requirements, your budget, and your lifestyle. As a rule of thumb, the more coverage you have, the more expensive your policy will be.

The type of deductible you choose can also influence your overall costs. A deductible is the amount of money you’re responsible for after an accident before the insurance company pays its portion. With a higher deductible, you may pay less money in premiums each month, but will be responsible for a bigger share of the expenses if you get into an accident.

Insurance History

Drivers who allow their coverage to lapse may be more likely to cancel their policy, so having a reliable history with one insurer may qualify you for a lower rate. In fact, it’s possible you’ll get a better quote when switching car insurance carriers than if you purchase insurance after going a few years without it.

Recommended: How to Lower Car Insurance

How to Get Affordable Car Insurance

The cost of coverage often varies by insurer. To find affordable car insurance, it can be a good idea to shop around and compare quotes. You can search online insurance companies and compare multiple car insurance rates.

You’ll also want to figure out how much car insurance you need. Keep in mind your state’s minimum car insurance requirements as well as additional coverage you may need.

If you’re looking to lower your car insurance, there are several strategies to consider. You may want to explore different policy options; look for bundling opportunities, such as getting your home and auto insurance from the same company; ask about possible discounts; and consider whether a policy with a higher deductible makes sense for you.

Recommended: Cheapest Car Insurance Companies: Find the Cheapest Car Insurance for You

The Takeaway

Drivers in New York pay an average of $3,096 per year for car insurance. However, the amount you pay can depend on several factors, including your age, gender, driving record, credit score, marital status, and where you live. It may help to shop around and compare multiple quotes to find coverage that fits your needs and budget.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

FAQ

How much is car insurance in New York monthly?

The average cost of car insurance in New York is $258 per month. But you may end up paying a different amount based on a wide range of factors, such as your age, gender, driving record, credit score, and location.

How much is car insurance in New York for a 25-year-old?

A 25-year-old man pays an average of $3,746 per year for car insurance, according to a late 2025 analysis conducted by U.S. News & World Report. Women of the same age pay an average of $3,608 per year. Gender and age are two of several factors that can impact how much you pay for coverage.

Is $300 a lot for car insurance?

In many cases, the average monthly cost for coverage in New York is below $300. But premium amounts vary based on a number of factors. A 17-year-old male driver, for example, could very well pay more than $300 per month because of his age and lack of driving experience.

Photo credit: iStock/cmart7327

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPRO-Q226-001

If your car is totaled in an accident, you may expect the insurance payment to come to you as the car’s owner, but this isn’t necessarily true. If you financed or leased your car, the insurance company will make sure the lender or leaseholder is paid first. You’ll receive whatever remains of the settlement — if anything.

Read on for a breakdown of how the insurance claims process works and who gets the insurance check when a car is totaled.

Getting an Insurance Check for a Totaled Car

Unless your totaled car was only a few months old, or you have new car replacement coverage, the check you receive from the insurance company probably won’t be enough to replace it with a brand new model.

If your car is financed or leased, as noted above, the insurance company will first pay off the lender or leaseholder. The car’s owner will receive a check only if any funds remain after the car is paid off.

If you’re not sure what would happen if your car was totaled, it might be time for a personal insurance planning session to review your coverage.

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car?

What Happens If Your Car Is Totaled in an Accident?

After an accident, your insurance company will assign an adjuster to assess your car and estimate the cost of repairs. If the estimated cost of fixing the car is more than the car’s market value, the insurance company may declare it a “total loss.” The same thing may happen if the insurance company determines the car may not be safe to drive, even if it were fixed.

How Your Car’s Value Is Determined

The insurance company will determine your car’s “actual cash value” based on its pre-crash condition and what similar models are selling for in your area. They’ll also factor in the car’s age, wear and tear (inside and out), mileage, and any optional equipment you’ve added. (You can learn more about the lingo discussed here in our guide to car insurance terms.)

Recommended: How to Get Car Insurance

What If the Accident Wasn’t Your Fault?

If another insured driver is found at fault for the accident that damaged your car, that person’s insurance should pay the claim — and your insurance deductible won’t come into play.

However, you should expect to pay your deductible amount if:

•   You’re responsible for an accident.

•   The fault is shared.

•   No one is at fault for the damage to your vehicle. For example, a tree branch or other debris hits your car in a storm.

•   The driver who caused the accident is uninsured or underinsured, and your uninsured motorist coverage pays your claim.

Is a Car Totaled When the Airbags Deploy?

The cost of replacing activated airbags will be considered in the overall cost of repairing your damaged vehicle. However, a vehicle won’t necessarily be declared totaled because the airbags deployed.

Who Decides If Your Car Is Totaled?

People often use the word “totaled” as a general description for a car that’s been badly damaged. But only your insurance company can decide a car is totaled based on its value and the cost of repairs.

What Types of Coverage Will Pay for a Totaled Car?

Drivers are often more concerned about the cost of their monthly premiums than with how much car insurance they really need. But not all types of coverage will pay for a totaled car.

After an accident, you’ll need one of the following policies — which should be available from both traditional and online insurance companies — to be reimbursed for a totaled car:

Collision

Collision coverage pays for damage to your vehicle or property. That can include damage caused by crashing into another vehicle or running off the road and into a tree or fence. Even if you’re responsible for the accident, collision coverage will pay for the repairs, minus the deductible amount you’ve chosen.

Comprehensive

Comprehensive coverage pays for losses caused by something other than a collision, such as a weather event, hitting an animal, theft, or vandalism.

Property Damage Liability

Property damage liability coverage pays for damage to your vehicle (and other property) if you’re in an accident and the other driver is found to be at fault.

Uninsured/Underinsured Motorist

If you’re in an accident and the other driver is at fault but isn’t insured or doesn’t have sufficient auto insurance, uninsured motorist coverage pays for your repairs.

New Car Replacement

With new car replacement coverage, if your car is totaled, your insurer will pay to replace it with a brand new car of the same make and model (minus your deductible).

Gap Coverage

If you owe more on your car loan or lease than what your insurance company says your damaged car is worth, you could end up having to make up the difference. Gap insurance can bridge the gap between your settlement and what you still owe.

Rental Reimbursement

Unless you have a backup vehicle to use until you replace your totaled car, you may have to rent a car. If your auto policy includes rental reimbursement coverage, your insurer may refund your out-of-pocket costs for the rental, but only for a limited time.

Do You Still Have to Make Loan Payments on a Totaled Car?

Even if your vehicle has been declared a total loss, your lender will likely expect you to keep making timely loan payments until the claim is settled. If you don’t, that can hurt your credit. It’s a good idea to stay on top of any paperwork and to check in with your insurance company and lender regularly to be sure the claims process is on track.

What If the Insurance Payment Isn’t Enough to Pay Off Your Loan?

Unless you have gap coverage, the settlement you receive may not be enough to pay off your loan or lease. Insurers are required to pay only what a totaled car was worth before it was damaged. So if your car’s actual cash value is less than what you owe the lender — or less than the payoff amount on your lease — you can end up having to make up the difference out of pocket.

If you research what your car was worth and think your settlement amount is too low, you can try to negotiate a higher amount. The insurer may ask you to provide documentation that proves the car was worth more than they’re offering, so be ready to round up photos of the car, maintenance receipts, and other paperwork that backs up your position.

You can also research comparable cars in your area. You may even want to hire a private appraiser to get a second opinion. If you think it will help, you might also consider hiring an attorney.

Do Insurance Rates Increase After a Car Is Totaled?

Each insurance company has its own policy that determines whether a driver’s rates will increase after an accident. The decision may depend on who was at fault, your driving record, whether you’re a longtime customer or new driver, and other factors.

If you decide to shop for lower insurance rates to save money, keep in mind that you may have to answer questions about prior claims and accidents.

The Takeaway

When a car is so badly damaged that fixing it would cost more than it’s worth, the insurer may decide it’s totaled. That means instead of repairing it, the insurance company will pay the owner the car’s actual cash value based on its condition prior to the accident.

If you own your car outright, the payment will come to you. If the car is financed and you’re still making payments, the insurer will make sure the lender is paid first. After that, you’ll get what’s left of the settlement. Either way, you could end up short of what you’ll need to replace your damaged vehicle.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

FAQ

If my car is totaled, will the insurance company send me a check?

If you own the car, the settlement payment will go directly to you. When the car is financed, the lender will be paid first, and you’ll receive what’s left of the settlement.

Can I keep the money from the insurance claim?

If you owned the car that was totaled, you probably can use the insurance settlement for anything you like. But if the car was financed, the insurance company will make sure you pay off what you owe.

How long does it take to get an insurance payout for a totaled car?

The time it takes to receive a payout varies depending on the insurer and the details of the case. The process involves assessing the damage to your car, determining your car’s actual value, and negotiating and finalizing a settlement. This can take anywhere from a few days to over a month.

Photo credit: iStock/rocketegg

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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The average American driver spends over 290 hours on the road each year. With so much time spent in the car, many people are rethinking the type of vehicle they drive and the impact it has on the environment. For conscientious drivers, EV vs hybrid is a question not solved with a simple Google search.

Charging stations, repair costs, maintenance costs, miles per tank, and miles per charge are some of the things that need to be considered in the electric vs hybrid cars debate. As is auto insurance.

What Is an Electric Vehicle?

An electric vehicle does not use gasoline to turn the engine. Instead, it relies entirely on batteries. To charge the batteries, EV owners must either charge their cars at home or locate a public charging station, which are becoming more abundant every year.

The number of miles you can go on a single charge depends on the make and model of your EV and your driving habits. Typically, newer models can travel longer than older models, but if you’re prone to aggressive driving (meaning you often accelerate quickly), then the charge on your EV battery won’t last as long.

EVs are often purchased by people who want to have less of an impact on the environment and who aren’t concerned about locating charging stations.

What Is a Hybrid Vehicle?

A hybrid vehicle blends an internal combustion engine with an electric motor powered by batteries. Unlike EVs, some hybrids don’t have to be charged. Instead, the batteries are recharged through regenerative braking. There are some plug-in hybrids on the market, though. These technically don’t need to be plugged in, but you’ll get fewer miles per tank if you don’t charge.

Hybrids are often chosen by people who, like EV owners, want to have less of an impact on their environment but travel greater distances and can’t rely on charging stations.

Key Differences Between EVs and Hybrids

Who wins in a hybrid vs EV comparison?

As noted above, EVs and hybrids have multiple ways they can be compared and contrasted. To truly understand how they differ, you need to understand how they are repowered or refueled, how much it costs to work on them, and the toll they each take on the environment.

Power Source

Electric vehicles are powered through high-capacity batteries, meaning no gasoline is needed to turn the motor. Because of this, EVs don’t have a direct impact on the environment when it comes to carbon emissions.

Hybrids use engines that switch between battery and gasoline power. Some hybrids need to be plugged in to charge their batteries, but many solely rely on regenerative braking for charging.

Fueling and Charging

EVs need to be charged, but how often depends on the specific car in question. Hybrids, on the other hand, require gasoline and do not solely rely on electricity. The gasoline required for a hybrid is the same gasoline that’s needed for a standard car.

Because EVs require special charging stations that are not yet ubiquitous across the United States, hybrids are easier to refuel than EVs. However, this isn’t true for all areas of the country.

Maintenance Costs

EVs don’t have as many moving parts as a hybrid or traditional vehicle. They don’t even require oil changes! Because of this, routine maintenance is very minor.

Hybrids cost about the same to maintain as standard cars, but you may end up actually paying less. Brake pad degradation is slower, and because it has a complementary engine system, the wear and tear on the internal combustion and electrical engines are slower because they trade off workloads. When all is said and done, expect to spend about the same if not less on maintenance than you would with a regular car.

Environmental Impact

As discussed, EV cars have a very minimal impact on the environment compared to standard cars because they have zero tailpipe emissions. The only factors that need to be considered for the truly conscientious are manufacturing impacts on the environment, the power grid used to power the car, and end-of-life battery disposal. Other than those small factors, EVs are much better for the environment than standard cars, especially for local air quality.

Hybrids switch back and forth between battery and fuel power, and are much more fuel efficient than a standard car, leading to lower emissions overall.

Both cars help support a cleaner environment, but it can be argued that an EV is better overall.

Cost Differences Between EVs and Hybrids

The cost differences between EVs and hybrids depend on the model and manufacturer. At purchase, it’s possible to spend around $25,000 for a hybrid and $30,000 for an EV. Just remember that EVs typically cost more because of the battery technology required to power the engine. While they have lower maintenance costs, repair costs can be significantly higher.

Electric vehicle insurance can also be higher than insurance for a hybrid.

Recommended: How Much Auto Insurance Do I Need?

Insurance Considerations for EVs and Hybrids

How does car insurance work for EVs and hybrids?

EVs have more specialized parts, which means when repairs are needed, they can cost more to repair than hybrids. Plus, trained technicians capable of repairing EVs are not as abundant nationwide. Because EVs require both specialized parts and specialized labor, they cost more to insure.

Hybrids cost less because the parts are not as specialized, and the know-how needed to work on them isn’t as in-depth as EVs.

On the plus side, many insurance companies offer discounts for driving both EVs and hybrids. While discounts are one of the many ways to lower car insurance, compare annual costs for specific models with each provider before deciding.

Keep in mind that the costs of car insurance for both EVs and hybrids is likely to be higher than it would be for a standard car.

Recommended: Auto Insurance Terms

The Takeaway

Electric vs hybrid vehicles isn’t as simple as choosing which one is better than the other. An EV has zero direct emissions and costs less to maintain year to year. But repair costs can be high because they have more specialized parts, which, in turn, leads to higher insurance costs.

Hybrids are cheaper to repair and insure, but they have a bigger impact on the environment. Some hybrids don’t require charging and are easier to travel across the country in. Some do if you want better fuel economy.

There are many variables to analyze. Each person may reach a different conclusion with the data they find. In the end, which option is the best for you depends on your budget, needs, and goals.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

FAQ

What is the difference between an EV and a hybrid?

The main difference between an EV and a hybrid is the power source. An EV is powered by batteries, while a hybrid is powered by both batteries and gasoline.

Is an EV cheaper to maintain than a hybrid?

Because EVs have fewer moving parts, they are typically cheaper to maintain than a hybrid.

Do EVs cost more to insure than hybrids?

Yes. While EVs are cheaper to maintain than a hybrid, if parts are needed, repair costs can be high. Because of this, EVs often cost more to insure than a hybrid vehicle.

Which is better for long-distance driving?

Recharge stations aren’t as abundant as drivers often need them to be. For long-distance driving, hybrids are often the better choice.

Do hybrids require charging?

Some hybrids do need to be plugged in to charge for maximum fuel efficiency. Many hybrids, however, charge via regenerative braking and internal combustion.

Photo credit: iStock/coldsnowstorm

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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