When you bring home a new vehicle from the dealership, you may be financing it. Have you ever wondered, "What happens if I get into an accident and face a total loss on the vehicle?" Did you know that you’d be responsible for paying the remainder of your lease or loan even though the car is totaled?!
Even if you have collision coverage (which is what will cover the cost to replace your totaled car) this coverage alone is only going to pay out the actual cash value of your vehicle. Which is often less than what you still owe on your car. Loan gap insurance helps pay this difference, in the event of a total loss, between what you still owe on your totaled vehicle and what the insurance company determines is the vehicle’s actual cash value — so you won’t be left to cover that potential hefty bill all on your own.
Here's an example of how gap insurance works:
You buy a car for $20,500, make a $500 down payment and take out a $20,000 loan with monthly payments of $300.
Four months later, you get into an accident and your car is totaled. Your insurance company says the actual cash value of your vehicle, or the fair market value, is $16,000. They’ll pay this much (minus the deductible) through your collision coverage on your insurance policy.
However, because of the structure of your loan payment, you still have $19,700 to pay on the loan, leaving a gap of $3,700. Without gap insurance, you’d be responsible to pay that entire difference. However, with gap insurance, you’re only responsible for the deductible.
Simply put, gap insurance protects you from having to pay the difference out of your own pocket (for a vehicle you no longer can drive!), while also having to pay for another vehicle, too. Do you carry gap insurance? Call our office today for more information!