Car accidents can be financially devastating, especially for motorists whose vehicles have been totaled or stolen. In this situation, a motorist’s standard auto insurance should cover the vehicle’s actual cash value (ACV) at the time of the collision. However, this coverage may not be sufficient to cover what the motorist still owes on their auto loan or lease.
GAP (Guaranteed Auto Protection) insurance is an optional coverage designed to protect car owners in such an event. It specifically addresses the gap between the car’s actual cash value (ACV) and the motorist’s remaining loan or lease balance. GAP insurance can be especially important for those who have owned a car for a short period.
Understanding the need for GAP insurance
When an individual has conventional auto insurance, the package covers the vehicle’s cash value, which typically reflects depreciation over time. In the event of a collision, the insurance will only cover this reduced value.
However, in many cases, car owners owe more on their loans or leases than the car is currently worth. This is true if the vehicle was recently purchased with little money down. In such cases, the owner would need to pay the remaining balance out of pocket if their vehicle is totaled.
GAP insurance helps to ensure that car owners are not financially burdened by the remaining loan or lease balance after a total loss. This can be a lifesaver, preventing a scenario where the car is gone, but the debt still lingers.
How GAP insurance differs from typical auto insurance
The key difference between GAP insurance and typical auto insurance lies in what is covered when a vehicle is totaled. Standard insurance policies typically only cover the vehicle’s actual cash value (ACV). This coverage often does not correspond with what the owner still owes on a loan or lease. GAP insurance, on the other hand, covers the balance after the payout from the conventional insurance package is depleted.
GAP insurance provides essential coverage in the event of an accident for car owners who have purchased their vehicles on loan. Aside from having this complementary insurance, motorists involved in car accidents should also seek compensation from the at-fault party. With efficient legal guidance, affected motorists can access more financial resources in their time of need.