If your car is worth 12K but you owe 20K on it will the insurance company pay it off if it is totaled in an accident?

You can only collect the fair market value or retail book value depending on the regulations as established by your state's insurance commissioner. The only way you can collect the difference between the Actual Cash Value of your vehicle and the Payoff is through GAP insurance. This is usually offered to you during the purchase of your vehicle but can be purchased later. At the time of purchase, the offer to purchase GAP insurance may seem like a ploy by the salesman to sell you something you don't need. However GAP insurance is a valuable option should this situation arise. GAP insurance is what its name implies, insurance coverage for the "GAP" between the fair market value of your vehicle and the payoff amount.