The Importance of Purchasing GAP Coverage for Your Car!
In the past year we have seen the good and the bad of the GAP Coverage insurance industry. For those of you who are not sure what GAP coverage is, I will provide you a brief explanation. Gap coverage is typically needed when a car is deemed a total loss by the insurer either after an accident or some other type of unfortunate event.
You have auto insurance (either: liability, collision, comprehensive, PIP and/or underinsured) to cover the fair market value or actual cash value (depending on type of policy) of the totaled vehicle, but what if the fair market value is $8,000.00 less than what you still owe on your car loan?
The issue described above is where GAP coverage would kick in and thus you hopefully purchased it. GAP coverage provides the necessary financial backing to make the coverage wholly sufficient to extinguish the remaining portion of your car loan. At some point during ownership of your vehicle, you should hopefully surpass the need for having GAP coverage because your car will eventually stop depreciating and hopefully at some point you will be able to pay off your car loan.
Now lets say the fair market value of your car is $20,000.00, you have a car loan with a $28,000.00 remaining balance. If you have GAP coverage, the auto insurance should pay the fair market value that will cover the first $20,000.00. Then you need to use those submit your claim to GAP, and they should cover the remaining $8,000.00 to make you whole and extinguish your loan. By doing so this essentially puts the owner back in the position to purchase a new vehicle, under a new loan with potentially better rates. Also, by having GAP coverage it alleviates the stress that comes with paying $8,000.00 of your own money to pay for a car loan on a vehicle which you no longer can drive.
GAP coverage is typically purchased through the dealership at the same time you purchase your car. A copy of the executed GAP coverage should be included in the documents you take with you upon leaving the dealership with your car. By opting out of GAP coverage you are placing yourself in a very risky situation that could lead to severe financial hardships that can all be avoided by choosing to pay the small fee and make sure your car is completely covered.
When dealing with your GAP claim, the insured will first need to get a settlement from their auto insurer and submit that settlement documents, along with all other documents required by your GAP coverage contract and send those to the GAP insurer. This process can typically take anywhere from three weeks to two months to be completed, but can be expedited by being diligent and prompt in corresponding with the insurers.
The reason for needing to settle with your auto insurer first is somewhat obvious. The gap between the auto insurer’s coverage and the remaining loan balance needs to be definitive before GAP can determine what amount is necessary to extinguish the loan. GAP coverage is not going to pay on a claim if it would give the insured a windfall of profits. You also need to be very diligent to find the time limitations for filing your claims, in some instances you must notify your GAP insurer within 90 days, or within 90 days of settling with your auto insurer.
Hopefully, you and your loved ones do not find yourself in need of using the GAP coverage, but in the event you do need to use it, please follow the guidance given above. You can also contact Ball & McCann, LLP if you have any concerns over your insurance coverage.
Ball & McCann, LLP