What is Gap Insurance?
If you have a car loan or lease and you find yourself in an accident, you might need to come to grips with a difficult question: Is the car even worth fixing? And if fixing the car appears to cost more than it’s worth, do you still have to pay off your loan? What are your options? Thankfully, there’s a form of auto insurance that is meant to help resolve this very issue. Read on to learn about gap insurance, and call a dedicated Palmdale car accident lawyer if you or a loved one has been hurt by a negligent driver in the Antelope Valley.
What Does Gap Insurance Cover?
Gap insurance is meant to cover you when the amount left on your car loan or lease is greater than the value of your vehicle. Gap insurance kicks in when your car is stolen or wrecked and declared a total loss (“totaled”).
You may have (and indeed, should have) other insurance that covers the value of the car at the time of the incident, covering either the repairs or the total value of the vehicle if it’s a total loss. That would be your collision and comprehensive coverage. Collision insurance does not, however, help you with your car loan or lease. It maxes out at the total value of your vehicle at the time of the theft or accident. If the remaining amounts owed on your lease or loan are more than the total value of your car at that time, you would still owe those additional amounts, even though you are entirely without the use of your car. That’s where gap insurance steps in, to cover the amount remaining on your loan.
You can purchase gap insurance through your auto insurance provider, through a company that exclusively sells gap insurance, or from the dealership or lender, which is then rolled into your loan payments. Note that if you purchase gap insurance through the lender, you’ll be paying interest on the cost of your gap insurance for the life of the loan, which makes the coverage much more expensive.
Illustrating Gap Insurance
It’s easier to understand gap insurance by way of an example. Let’s say that you own a car worth $15,000. For the past several years, you have only been paying off the interest on your loan, rather than the principal, and the vehicle has depreciated during that time. You still owe a total of $20,000 on your car, even though the vehicle is now only worth $15,000. Then, you get in a car crash.
If your car is totaled, your car insurance will pay out a max of $15,000 for the value of your car. You would then still owe $5,000 on your car loan, even though you no longer own a car. If you had gap insurance, the gap insurance would then come in to cover the $5,000 outstanding on the car loan. Auto insurers typically charge only a few dollars a year, or an average of $20 a year, for gap insurance, so it can be a cheap buy.
Should I Get Gap Insurance?
Gap insurance might or might not be worth purchasing, depending on the person and their automotive arrangements. Gap insurance may be worth buying in a few situations, including the following:
- Little or no down payment on a financed vehicle. If you pay next to nothing upfront, then the amount of your loan will quickly exceed the value of your car. It could take a few years before the amount on the loan equals the value of the car, meaning gap insurance might be worth having from the beginning.
- You bought a car with low resale value. If the value of your car quickly drops after your purchase, then your auto loan may be above the purchase value. Gap insurance would come in handy if your car is stolen or totaled.
- You drive a lot. If you expect to put thousands and thousands of miles on your car very quickly, your car will very quickly depreciate in value. Gap insurance will cover the difference.
These are not the only circumstances under which gap insurance would be useful, but it is certainly not necessary for every car buyer. Consider your options and your financial situation when you purchase a vehicle to evaluate whether gap insurance makes sense for you.
If you or a loved one has been injured or killed by a negligent driver in California, talk to a seasoned and compassionate Palmdale car crash lawyer about pursuing a claim for damages by calling the Kistler Law Firm at 661-206-6990.
