If your car gets totaled in a car accident and your car costs less than the loan balance, you need to pay the balance. It could be anywhere between hundreds to thousands of dollars. Most people don’t have the cash at hand and are ready to bail it out. It is here that gap insurance can act as a financial lifeline for vehicle owners. There are situations where you might never require this insurance. However, if you need it and don’t possess it, you will rather wish you got it.
It is necessary to get in touch with an expert personal injury lawyer to understand how gap insurance works. If you require any help with a car accident claim, you get in touch with an expert car accident law firm to get a consultation. Once you get convinced, you can hire an attorney and proceed with your case.
Understanding gap insurance
Simply put, gap insurance pays the difference between an insurance payout totaled for the car and the lease or loan balance. It means that the gap insurance can pay the remaining lease or loan if you owe an increased loan amount compared to the totaled car’s cost. You might also resort to gap insurance in case your car gets stolen.
Let’s understand this with a hypothetical situation about applying for gap insurance. If you bought a vehicle for $20,000 and incur an accident after a few months, you will owe more on loan than the vehicle value. If an insurance organization values the car at $18,000, the gap insurance can cover the remaining $2000.
If you don’t possess the gap insurance and you owe an amount that is more than the car price, you need to pay the difference yourself. Several car dealerships make it optional to purchase gap insurance. However, chances are you might have to buy this coverage when you are leasing the car.
Do you require gap insurance?
According to the Insurance Information Institute, gap insurance is useful if you:
- Leased your vehicle
- Placed negative equity from the last auto loan to the new one
- Place less than 20% on the car.
- Draw a loan that lasted you for five years
- Purchased a vehicle that reduces in value quickly than other vehicles
If you resonate with any of the situations mentioned above, you need to give a thought to gap insurance.
Difference between gap insurance from liability and collision coverage
If you have an auto accident, the liability insurance allows you to pay for the driver’s medical cost and the lost income. The coverage is essential by law and might help pay for the legal fees if you get taken to court for an accident. The comprehensive and collision coverage are known as an optional coverage that covers the vehicle damage. Collision coverage covers for the damage from a crash resulting from another car or object. The comprehensive coverage covers the damages that don’t occur from a collision, like vandalism, weather events, falling objects, and theft. It would be best to get in touch with an expert car accident attorney to understand the relevance of gap insurance.