What is gap insurance and what does it cover?
Shopping for a new car should be an exciting time, but lacking the proper coverage when you hit the road can turn a ride in your dream car into a nightmare scenario. For drivers considering a new car or transitioning between vehicles, gap insurance can be a cost-effective method of obtaining the coverage you need. Learn more below from the Los Angeles personal injury lawyer team at Ellis Injury Law.
What is Gap Insurance?
A need for gap insurance comes from the reality that your vehicle begins to depreciate from the moment it rolls off the sales room floor. In fact, most new cars lose a full 20 percent of their value within the first year often significantly outpacing the total amount paid on a loan during the same time frame.
Where standard auto insurance policies only cover the actual cash value (the value of a vehicle at the time of the accident) of your car at the time of a claim, gap insurance provides additional security that can deliver supplemental coverage between the actual cash value and the amount you owe on any loans used to purchase it. This is especially valuable when buying a new car, as an accident could leave you without a car or funds to satisfy your existing loans.
If you have an accident that requires major repairs or replacement, gap insurance can provide outstanding value. For example, in a severe accident without gap insurance, a vehicle with an actual cash value of $20,000 associated with a loan or lease on which $26,000 is owed could leave you owing the lender $6,000 as well as having to repair or replace your vehicle in the vast majority of cases.
In contrast, gap insurance would provide the $6,000 you need to close your debt in good standing. This type of policy is intended to ensure drivers can at least avoid a loss after an accident involving their new car, putting them in a better position to start again.
Is Gap Insurance a Good Idea for Me?
Adding Gap Insurance to your policy comes with pros and cons in all cases, but is definitely a better idea in some cases than others.
Buyers who made a down payment of less than 20 percent should strongly consider adding Gap Insurance to their policies, as the higher interest rate on these loans can see the amount owed balloon quickly , especially if only minimal monthly payments are made. For the same reason, vehicles that are financed for 60 months or longer should also consider Gap Insurance.
Vehicles that depreciate faster than average, including lower-tier economy cars as well as many models of luxury vehicles, should also be protected with Gap Insurance to prevent being saddled with outsized debt after an accident. Vehicles obtained through leases represent another common class of candidate for Gap Insurance, and many leases require that this option be added to a standard policy.
What Does Gap Insurance Cover?
Instead of working as a standalone policy, Gap Insurance is an option you can use to bolster the coverage options in your established policy. Along with standard accidents and collisions, gap insurance can provide critical coverage in a number of other scenarios as well. Gap insurance can cover events such as theft, vandalism and fire as well as damages resulting from natural disasters such as floods, tornados, and hurricanes.
What Does Gap Insurance Exclude?
Gap Insurance can offer an essential layer of protection in a number of situations, but understanding the details of your policy is essential to getting the coverage you need. For instance, these policies are intended to provide restitution for major damage or total losses, so mechanical failures such as engine trouble are usually outside the scope of Gap Insurance.
Common exclusions in qualifying incidents include high end aftermarket modifications such as AV systems, body kits, and engine upgrades. The cost of an extended warranty is also excluded from many policies, as are overdue payments on leases or loans. You also will typically have to pay your deductible, and this amount is most often taken out of your reimbursement total.
Does Gap Insurance Cover Personal Injury?
The main purpose of Gap Insurance is to protect buyers from exceeding the value of their vehicle with the costs of financing, and so these policies are only applicable to vehicle losses. They do not provide restitution for bodily injury, emotional trauma, medical expenses, lost wages, or funeral costs. Drivers looking to benefit from coverage in these cases should look to supplement their policies with the appropriate additions instead.
Gap Insurance can be an invaluable option for many Los Angeles drivers, especially those with vulnerable loans. Talk to a personal injury attorney at Ellis Law to discover whether adding this option to your policy can provide the protection you need. All case reviews with a Los Angeles car accident lawyer at our firm are free of charge and totally confidential.