Why GAP Insurance is Important

Why GAP Insurance is Important

Guaranteed Asset Protection (“GAP”) insurance is a type of insurance coverage designed to protect individuals who finance a vehicle. It is particularly relevant in situations where the value of the vehicle may depreciate rapidly, leaving the borrower in a potential financial gap if their vehicle is declared a total loss after a car wreck. Here’s how GAP insurance works.

Vehicle Depreciation

Over time, a vehicle’s value typically depreciates. If you finance a car, you may owe more on the loan than the car is worth.

Total Loss Event

In the unfortunate event that your car is declared a total loss your auto insurance provider will typically compensate you for the current market value of the car on the day the wreck occurred. This amount may be less than what you still owe on your automobile loan.

GAP Insurance Coverage

GAP insurance steps in to cover the difference or the “gap” between the actual cash value the insurance company pays and the amount you still owe on your loan. This coverage helps you avoid having to pay out of pocket for the remaining balance.

While it’s not a legal requirement, many individuals find GAP insurance beneficial, especially if they have a loan with a small down payment. Before purchasing GAP insurance, it’s important to check with your auto insurance provider, as some policies may offer this coverage as an optional add-on. Alternatively, you can purchase a standalone GAP insurance policy from other insurance providers or through the dealership where you buy or lease your vehicle. Always carefully review the terms of the policy to understand its coverage and limitations.

Do you need a car wreck attorney?

The Hair Law Firm focuses on car wreck cases, representing clients daily, and filing lawsuits when necessary. If you or a loved one has been injured in a car wreck, contact the Hair Law Firm at (803) 881-3711.

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