If you are involved in a car accident caused by another driver, he is responsible for reimbursing you for the damage to your vehicle as well as your medical bills, lost wages, and pain and suffering. You may also have the option of filing a claim with your own insurance company if you purchased collision insurance.
However, the negligent driver’s insurance company and your own insurance company would only be responsible for compensating you for the value of your car if it was totaled in the crash. This may not be enough to pay the balance owed on your auto loan because your vehicle begins depreciating as soon as you drive it off the car lot. Gap insurance can protect you in this situation—if you bought this optional coverage.
What Is Gap Insurance?
Gap insurance is insurance coverage that you can buy that covers the gap between the balance owed on your auto loan or lease and the actual cash value of your car. The actual cash value is the cost to replace your vehicle minus its depreciation and is what you would be entitled to from the negligent driver or under your collision coverage. Your gap insurance would pay you this difference between the actual cash value and your car loan balance.
Here is how it works. If you owe $25,000 on your car loan and your vehicle’s value is only $20,000 when it is totaled in a car accident, your gap insurance would pay the $5,000 you would still owe on your car loan after settling your claim with the insurance company. This would enable you to completely payoff your totaled vehicle’s loan balance.
When Is Purchasing Gap Insurance a Good Idea?
Not everyone needs to purchase gap insurance. You may want to do so if one of these situations apply to you:
- You did not make a 20 percent down payment when purchasing your vehicle.
- You are leasing your car.
- You entered into a long-term loan to finance your auto’s purchase.
Do you have other questions about gap insurance? Do you need to file a claim for compensation with the insurance company? Our experienced car accident lawyers are here to answer your questions and file your claims with the insurance company. Call our Norfolk office to schedule a free consultation to learn more about your options.