If you loan or lease a car, it may be wise to obtain insurance known as guaranteed auto protection or “GAP” coverage. If a vehicle is involved in an accident that results in total loss, GAP coverage seeks to make the insured whole by covering the difference between the current market value of a vehicle and the amount that is still owed under the loan or lease. Without GAP coverage, an individual would be liable for the difference between the outstanding loan balance and the actual cash value of a financed vehicle.
If a vehicle is destroyed beyond repair, stolen or never recovered, GAP coverage seeks to provide protection when a financed car has negative equity, which means more is owed under a loan or lease than the car’s fair market value. This situation often occurs within the first few years that one owns or leases a vehicle when the fair market value of a vehicle depreciates significantly and the amount financed is particularly high.
For individuals who have gap coverage, it is important to track the fair market value of the vehicle versus the outstanding loan balance. Once there is equity in the vehicle—the value of the vehicle is greater than the outstanding loan amount—there is no benefit in having GAP coverage and the coverage should be cancelled.
Example of How GAP Coverage Works
Here is an example of how GAP coverage works:
- You purchase a car for $20,000.
- You pay $2,000 upfront and finance the remaining $18,000.
- A few months later you are in a car accident that destroys the car. At the time of the accident, the car is valued at $14,000.
- You still owe $17,000 toward the amount financed to purchase the car.
- If you have GAP coverage, the policy would cover the difference between the fair market value ($14,000) and amount owed to the financing company ($17,000).
It is important to recognize, however, that gap insurance does not provide coverage for any interest or late fees charged by the lender or any missed loan payments. Furthermore, Allstate, a provider of GAP coverage for vehicle owners, reminds individuals that GAP coverage does not cover other costs, including:
- Payment continuation if you lose your job or suffer a disability;
- Reimbursement for necessary repairs to your car if it’s damaged in an accident;
- Rental car service if you’re left without the use of your car due to damage or an accident; and
- The difference between what your car was worth pre-accident and what it’s worth after it’s been repaired.
Contact a Brandon Car Accident Attorney
If you or a loved one has been injured in a car accident, a Brandon car accident attorney can help you with your case. At Reed & Reed, our team of experienced car accident attorneys can help protect your rights to make sure that you obtain the compensation you deserve. The Florida car accident attorneys at Reed & Reed have experience prosecuting all types of car accident claims.
Contact a Brandon car accident attorney to find out how we can help you. From our office in Brandon, we help clients in Tampa, New Tampa, Plant City, East Hillsborough County and throughout the state of Florida. Contact Reed & Reed for a free consultation.