You bought the car of your dreams. Two months later the unthinkable happens and you are in an accident. Your vehicle is beyond repair and the insurance company is paying you only for the value of your vehicle?
What!!??? I owe more than that. This wasn’t my fault and this isn’t fair are two likely responses you have at this point. Unfortunately, the law states that the insurance company only has to pay for the value of the vehicle nothing more. Thereafter, you are on the hook for the balance as you signed a contract agreeing to pay down the loan amount which they legally can go after you for if you don’t pay.
Hopefully, you are never placed in this situation where you are without a vehicle, injured and now have to continue to pay on a vehicle you can’t use anymore and most likely still need another vehicle. A great way to avoid is to purchase what is called Gap Insurance.
What is Gap Insurance?
It is just like it sounds, it covers the gap between what your vehicle is worth and what you owe on your vehicle. So in the situation above the Gap Insurance company steps in after the car insurance company and pays off the balance you owe. This is especially helpful when you have a newer vehicle and right when you take it off the lot the depreciation starts and you already owe more then what it’s worth.
So how do you get it? Well, many times when you are there purchasing your vehicle the dealership will offer it but most of us decline it to get a lower payment. However, it is something I strongly recommend looking into to avoid being on the short end of the stick god forbid if you are in an accident where your brand new vehicle is totaled. Contact your local insurance or google around as there are many companies who offer this service.
At the end of the day, you may end up being with no vehicle due to the circumstances of the accident but with Gap Insurance you will also not be stuck with the debt left over after the insurance pays out the value of the vehicle. Not the best situation to be in by any means but will save you thousands of dollars and at the very minimum when you are out shopping for a new vehicle think twice about buying it.