As if experiencing a car accident isn’t bad enough, things only get worse when you find out that your insurance coverage only pays for the current value of your totaled vehicle before the accident and you still owe more than that amount to the bank.
Making payments on a totaled car is frustrating, but a car’s value begins declining the moment you drive it out of the lot, typically depreciating by 20% within the first year. If you wreck your car or it’s stolen, you may be disappointed in the amount of property damage compensation you receive compared to what you’ve paid for the car—or are still paying.
If you’re worried about your vehicle’s depreciating value and the impact that may have if your car is stolen or totaled in an accident, gap insurance may be the perfect addition to your car insurance coverage.
Gap insurance is an optional addition to car insurance coverage that can be of significant benefit after an accident. Gap insurance coverage pays the difference between the depreciated value of a vehicle you’ve bought and the amount you still owe on the vehicle in the event of an accident or theft.
Imagine, for example, that you’ve bought a car for $50,000 and made a $10,000 down payment. Three years after the purchase, you total the car in a collision. By now, the cash value is only $20,000 and the standard collision insurance only pays the Blue Book value of $20,000 but you still owe $25,000 on your car loan. Your gap insurance policy makes up the $5,000 dollar difference and pays off the remainder of your car loan.
Gap insurance is meant as supplemental coverage along with the state’s requirement for personal injury protection insurance, collision, and/or comprehensive coverage.
If you are the original owner of a new car or truck and you paid less than 20% down on the vehicle with 60 months or more of financing, it’s a good idea to add gap insurance coverage to your insurance policy. This type of financing increases the chances that there will be a substantial gap in the car’s assessed value at the time of an accident compared to what you’ll still owe on the vehicle.
If you’ve purchased a vehicle that’s known to quickly depreciate in value, it’s even more important to add gap coverage to your insurance policy.
Most lease agreements for vehicles require leaseholders to purchase gap insurance.
Some car dealerships offer gap coverage to buyers, but typically the cost of a dealership policy is higher than adding it to existing coverage through your auto insurer. Gap insurance is surprisingly affordable considering its substantial benefits in the event of auto theft or an accident. Having this coverage in place can save you thousands of dollars you might otherwise owe on a vehicle you no longer have or cannot drive.
Most gap insurance coverage from insurers only adds $20-$56 to your yearly premium, while purchasing it through a car dealership may add as much as $700 per year to your payments.
It’s never too late to add this important coverage to your existing car insurance policy. If you or a loved one was involved in a car accident and are unsure of what compensation you may be able to recover, consider speaking with an experienced Seattle accident attorney to explore your legal options for compensation.
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