>> Feb 3, 2016
Whether you are to blame for the accident or not, you can get stuck with a huge financial burden even after you receive your insurance settlement. But, by thinking ahead, you can avoid falling into debt after being involved in an auto accident. Read further to find out what you can do if your car is totaled and you are upside down on your auto loan.
This issue often comes up in situations in which a vehicle is totaled, or in other words, when the insurance company decides that the cost to repair your car is more than what your car is worth.
Most people purchase their vehicles with loans, but sometimes cars lose their value faster than the loan gets paid off, especially in the first two years of the loan. As a result, the amount that an insurance company has to pay for a totaled vehicle can be less than the remaining balance on the loan.
For example, suppose you still owe $10,000 on your car, but the value of the car was only $8,000 when it was totaled. The insurance company will pay the value ($8000) of the car—not the amount left on the loan ($10,000). You will, therefore, have a deficit of $2,000 ($8000 - $10,000) after your insurance company pays, and your bank or lender will probably want to collect this amount immediately.
How Gap Insurance Can Help
Using the example above, you can be in an accident in which the other person is completely at fault and despite your innocence, owe more than the insurance settlement and have no easy means of paying. One way to avoid this is to purchase what is called “GAP insurance”.
GAP insurance is a type of insurance often offered in conjunction with an auto loan. It pays the difference between what your insurance pays out and what you owe on the loan when the car is totaled—so that, at the very least, you break even.
If you make a significant down payment, so that it's unlikely that your loan balance will ever be more than the value of the car, then GAP insurance will be unnecessary. But, if you're heavily financing the purchase of your car, you may want to consider paying for GAP insurance as well. In fact, your lender may insist that you carry the coverage, and most people purchase GAP insurance through the lender that finances the purchase of their car.
GAP insurance can also be purchased through your auto insurance provider, and in some cases, it is automatically calculated into your auto insurance premium.
Furthermore, if you are leasing your car, it may be part of the lease. So, to make sure that you are not paying for it twice, always ask your insurer and/or your leasing agent if GAP insurance is already included in your monthly payments.
If you are involved in an automobile accident and need help, or want to learn more about GAP insurance and how it could affect your claim, contact a reputable personal injury attorney. Most offer no-cost, no obligation consultations and will let you know if you even need a personal injury attorney to resolve your claim. Talk to one before you sign anything or talk to any insurance adjuster.