What Is GAP Insurance and What Does It Cover?
If you are involved in a vehicle accident, then you know that insurance is going to play a role when it comes to paying compensation for medical bills and property damage. However, what happens if your vehicle is fairly new and the cost to repair it ends up being more than the vehicle is actually worth? Here, we want to discuss vehicle depreciation and how GAP Insurance plays a role in vehicle accidents in Georgia.
Understanding GAP Insurance for a Vehicle
Not every person will have to have GAP Insurance when they own a vehicle, which explains why some people simply have not heard of this type of insurance. However, GAP Insurance is very important for individuals in the state of Georgia, particularly if they are leasing or financing a new car. In these situations, lenders typically require individuals to have comprehensive and collision coverage as part of their insurance policy until the car is paid off. GAP Insurance is meant to be used along with these other types of coverages.
In the event you get in a vehicle accident covered by your insurance carrier, comprehensive and collision coverages are designed to pay for a totaled or stolen vehicle. However, these coverages will only pay up to the depreciated value of the vehicle. This could be a problem if a vehicle is new and has recently been driven away from the dealer’s lot. New vehicles depreciate immensely, and almost immediately.
It is not uncommon for the depreciated value of a vehicle to be less than what a person actually owes. This leaves individuals in a situation where the insurance does not pay off the total value of their vehicle, and this is why GAP Insurance is important.
How Does GAP Work When an Accident Occurs?
GAP insurance comes into play if a person is “underwater” with their vehicle loan when an accident occurs. In other words, this matters if a person owes more than what their car is actually worth.
To properly examine how GAP Insurance works in Georgia, we can set up a theoretical scenario. Let us suppose that that person buys a new vehicle for $40,000. However, what happens if a person still owes $35,000 on their vehicle loan when the car gets totaled in a collision covered by their insurance.
In this scenario, a person’s collision coverage would pay the lender for the total amount of the vehicle, but only up to the vehicle’s depreciated value. Let us suppose that the vehicle is only worth $30,000 when the vehicle accident occurs. If a person does not have GAP Insurance, this means that the individual would be on the line for the additional $5,000 out of their own pocket to settle the vehicle loan for the totaled car. This is the difference between how much they owe and how much the car is worth.
When an individual has GAP Insurance, this type of coverage will pay the additional amount to that you do not have to take any money out of your own assets to make up the difference.
Do You Have to Use the Dealer for GAP Insurance?
It is not uncommon for dealers to make individuals think that they have to purchase GAP Insurance directly through them before they drive it off the lot. This is a tactic used by the dealer to try and get you to purchase additional products through them because they are benefiting directly from you doing so. Buying GAP coverage directly from an insurance carrier is usually going to cost less than buying from the dealer. We encourage you to explore your options with your chosen insurance carrier before purchasing a vehicle.
Contact our Atlanta car accident attorneys today.