Bridging The Gap: Gap Insurance Explained

What is GAP insurance? Gap insurance is the name commonly used for “Guaranteed Auto Protection" insurance. Gap insurance is insurance you can purchase to protect yourself from having to pay the difference between the amount you owe on your car, SUV, or truck loan and your vehicle's current estimated value.

Many people believe that if their automobile is stolen or totaled, their collision and comprehensive insurance will cover the outstanding loan on the vehicle. Alternatively, when another party is at fault in a motor vehicle accident and the non-responsible party's vehicle is totaled, people believe the responsible party's insurance company will cover all costs, including the outstanding loan on the vehicle. 

However, neither assumption is true. Even if you have comprehensive and collision insurance on your vehicle it only covers the vehicle's current fair market value. Likewise, if another person causes a wreck and is determined to be responsible for your damages, under Georgia law, the responsible party's insurance company is only required to compensate you for the automobile's fair market value. 

What is a vehicle's fair market value? It is the vehicle's actual cash value. Many times, after an accident, people are unpleasantly surprised to learn the fair market value of their automobile is a lot lower than expected - partially because insurance companies generally low ball you when they make an offer and automobiles depreciate rapidly. 

If your vehicle is stolen or you get into an automobile accident while you have an auto loan or you are leasing a vehicle, you can end up paying dearly for a vehicle you can no longer use. The difference between what you owe and what insurance will pay can be significant, especially if you had a zero/low down payment deal or you included the balance from a previous loan for a vehicle that was traded-in on your new auto loan. 

For example:

• You buy a new car for $25,000
• You rollover $5,000 from an upside down trade-in
• You make a down payment of $1,000 and take out an auto loan amount for $29,000
• You make monthly payments of $300
• You get hit by a reckless driver during the second year of ownership and the car is totaled
• You still owe $23,000 on the auto loan 
• The fair market value of the vehicle is $16,000
• So you are still responsible for $8,000 - the difference between the $23,000 you owe on your auto loan and the $16,000 fair market amount the insurance company will pay.

Gap insurance can protect you from these scenarios by acting as a financial bridge between the amount owed on the outstanding auto loan or lease and the automobile's estimated fair market value. Gap insurance can literally save you thousands of dollars. Your current auto insurance policy may already contain gap insurance. If not, you can purchase it through most large insurance carriers, or obtain it from companies that specialize in this insurance. Often times, the car dealership will offer gap insurance to you during the auto buying process. However, it is important to note that every gap insurance policy is different and there are limits on how much gap insurance will pay. Additionally, if you need to make a claim, you should be aware of the policy's terms and conditions to ensure that your claim isn't denied. 

If a negligent driver hits you and your automobile has been totaled, it is important that you get the fair market value for your damaged vehicle because gap insurance only covers the difference between the fair market value and what you owe. If you don't get the full fair market value from the insurance company, you can still end up having to pay out of pocket for a vehicle you can't use. If you have been injured in a wreck while you were in your own vehicle, you will have a property damage claim as well as a personal injury claim. While some law firms only handle the personal injury portion of your wreck, after an accident, the law firm of Simmons Rogers, LLC will help you with both your property claim and your personal injury claim. To learn more about our firm visit www.simmonsrogerslaw.com. You can also contact us at 404-445-8146 or [email protected].

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