There are many different types of car insurance. Between no-fault, PLPD, uninsured motorist, underinsured motorist, collision coverage and comprehensive coverage it can be very confusing. Car insurance agents in general do a poor job explaining coverage options and the positives and negatives of each.
One type of insurance coverage that is often overlooked, but is very important when a car accident occurs is GAP insurance.
GAP Insurance stands for Guaranteed Auto Protection. When a car accident occurs, it protects the policyholder from having to pay the difference between the amount the driver still owes on the car and the car’s estimated value.
How Does GAP Insurance Work?
GAP insurance comes into play when a driver owes a loan on a vehicle and gets into a car accident that results in a total loss. In other words, the vehicle is totaled. If the driver has collision coverage, his or her car insurance company will only reimburse the driver for the net present value of the vehicle. The insurer is not responsible for reimbursing the driver for the amount of the loan still owed on the vehicle.
GAP insurance provides coverage when this type of situation occurs. For example, John purchased a vehicle for $30,000 and took out a loan of $25,000. A year later he is involved in a horrible car accident that results in his new car getting totaled. John still owes $20,000 on the vehicle but the car has depreciated by much more.
After the crash, John’s insurance company totals the vehicle out for $15,000, which is his car insurance company’s estimate of the net present value of the vehicle. His insurance company writes him a check for $15,000, however John still owes the loan company the $5,000 difference.
This is where GAP coverage comes in. The GAP insurer will pay John the difference between the loan amount and what he received from his car insurance company for the totaling of his vehicle. Instead of having to pay $5,000 in out-of-pocket money to the loan company, the GAP insurer will cover the loss.
GAP insurance is often required by car loan companies and banks when leasing a vehicle. For example, if a person leases a vehicle the leasing company will require GAP insurance before the person can take possession of the car. When purchasing a vehicle, the loan company will often require GAP insurance as well, but not always. It is important to understand that the higher the loan amount, the more important GAP insurance becomes.
The Lee Steinberg Law Firm, P.C. recommends you ask questions and discuss GAP insurance with a qualified insurance agent when leasing or purchasing a Michigan motor vehicle. The insurance agent should be able to provide detailed and clear answers to your questions.
In addition, our experienced team of Michigan car accident attorneys can answer your questions. Please contact us at 1-800-LEE-FREE (1-800-533-3733) with any questions you have.