There is a reason why car dealerships will not allow you to drive off the lot without an insurance policy in place. The risk of an accident happens on all roadways, especially in Georgia, where drivers tend to speed and remain distracted. If you get in a car accident with a new vehicle, though, your insurance may not be enough to help cover all of your losses. That is where gap insurance becomes important. As always, consult a Newnan car accident lawyer if you are injured in a crash.
What Is Gap Insurance?
Guaranteed Asset Protection (GAP) insurance is a type of insurance policy that covers the difference between what you owe on your car loan and what the actual value of the vehicle is. It is necessary because, as soon as you drive off the lot, your car goes from being “new” to being “used” and that leads to a depreciation in value.
Data from Kelley Blue Book shows that new cars can depreciate as much as 30% in value over the first two years alone. They will then depreciate in value by 8 to 12% each year after that point. That means your vehicle’s auto insurance may not provide enough financial coverage for you.
How Gap Insurance Helps in a Serious Car Wreck
If you are involved in a car accident with a vehicle that has a loan outstanding, the standard process applies for seeking financial compensation for your losses through your insurance policy. However, after a serious car accident, where the damage is too severe, the insurance company may decide to total the car. That means the car is a total loss, and they will not repair it.
Most car insurance policies will pay the current actual cash value for the vehicle at the time of the accident. That is often not nearly enough to cover what you owe on the car. Due to depreciation, you may owe more on your vehicle than it is worth, especially if the car is newer.
Gap insurance covers that difference. It covers the difference between the insurance company’s actual cash value estimate for the vehicle and the amount you still owe your lender. As a result, you would not have to worry about having to pay for an auto loan on a vehicle that you no longer own.
The Benefits of Gap Insurance
There are several benefits to purchasing gap insurance:
- It helps you get out of a loan for a vehicle that is a total loss, even if you owe substantial value on it.
- Because depreciation of vehicles outpaces payments, it is very common for drivers to have only paid a fraction of the total car loan back during those two years, making it possible that you have thousands of dollars in losses that the insurance company will not cover.
- If you have a long-term loan on your car, that increases the risk that you will benefit from gap insurance, since even less of the car’s value is paid off during the process.
Because of the complexities of this process, it helps to seek legal guidance after a car accident.
Turn to a Local Attorney for Guidance
If you are in a serious car wreck, you need the support of a trusted, local car accident lawyer. Your Newnan personal injury lawyer helps you fight for fair compensation when someone else causes your injuries and losses.