“GAP insurance provides pay-off money for your auto loan. GAP insurance is “on top of” your auto collision insurance coverage. Gap insurance pays the difference between what you owe on your automobile and the total loss value of your automobile should you have a collision. You should consider GAP insurance if the money you owe on your auto loan is greater than the money your automobile is actually worth. GAP insurance is especially important for new car buyers more likely to have an auto loan exceeding the value of the auto. This guide helps you understand the basics of GAP insurance. Contact me if you have any questions about GAP insurance or the claims process.” Mike Burman
HOW GAP INSURANCE WORKS
Let me give you an example to show what GAP insurance is all about:
AMOUNT OF AUTO LOAN: $25,000
Less VALUE OF AUTO: $20,000
"GAP" TO PAY-OFF LOAN: $5,000
In the above example, the auto loan pay-off is currently $25,000 after all the add-ins and dealer costs. However, when you start paying your auto loan, the automobile's value generally goes down faster than the loan pay-off amount. So, over time the automobile is worth less than the pay-off amount on the auto loan. In our example, the automobile is currently worth around $20,000. Because $20,000 is less than the current loan pay-off of $25,000, there is a "gap" between the amount owed on the auto loan and the dollar value of the automobile purchased. This "gap" between the loan amount and the value of the automobile is $5,000 in our example.
Suppose you have a collision through no fault of your own, but the at-fault party is uninsured, then your auto insurance will pay the fair market value of your auto less any deductible. In our example, your auto insurance will pay $20,000. Who pays the $5,000? GAP insurance pays.
PURCHASING GAP INSURANCE
A car dealer will offer GAP insurance when financing your new or used automobile purchase. The bank or financing company where you borrow for your automobile often offers GAP insurance. Comparison shop before you go to the dealer and purchase your vehicle. If you comparison shop before you make your auto purchase then you know a fair price for GAP insurance. Like any insurance, you should comparison shop to determine whether the GAP insurer pays 100% or less. Is there a deductible? Are there hidden costs or fees? Some gap insurers do not cover your primary insurance deductible or will claim other deductions under the policy.
Gap insurance is optional. You do not have to buy it, but some lenders will not make a loan without it. In my experience, when my clients suffer a total loss to a vehicle with a pay-off more than the automobile is worth, then GAP insurance is well worth the premium paid.
MAKING A GAP INSURANCE CLAIM
If you purchased a new vehicle and financed most of the purchase price, then you probably purchased “gap” insurance. Check the paperwork you received when you bought your vehicle and took out the loan. This paperwork should itemize any GAP insurance purchase. To make a claim on a GAP insurance policy, contact the GAP insurance carrier and the bank or finance company holding your automobile loan. My office is also here to help as part of the service we provide in your automobile injury case.
My clients generally do not have trouble making any claim for GAP insurance once the claim is reported to the GAP insurance company. Contact me if you have any questions or need help.” Mike Burman