A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 18, 2021

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Most car insurance companies offer their customers the option of buying coverage that would reimburse them for the cost of replacing a totaled car. This insurance is also known as Guaranteed Auto Protection or gap insurance.

For the best deal on gap insurance, enter your ZIP in the FREE search box now!

This additional insurance protects car owners against incurring losses when the compensation amount for a total loss is less than the car’s financing or lease agreement.

Total Loss: Understanding the Fine Print

Insurance companies use the Actual Cash Value or ACV to determine if your vehicle is a write off or is eligible for repair once you file a claim on your insurance policy. If the cost of repairing and salvaging a damaged car is deemed more expensive than its book value, then an insurance company is likely to deem it a total loss or as “totaled”. Each state has different guidelines that set the benchmark for determining total loss.

Once a car is accessed as being a total loss, the insurance company will pay the book value as determined by them. Consumers can use NADA Guides to determine the value of their vehicle.

Additionally, you can get further information about your state’s requirements for calculating ACV from the Insurance Department for Information.

Since each state has different regulations, it is important that you know the details when you deal with your insurance company.

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Negotiating a Total Loss Settlement

If you are in an unfortunate situation that has resulted in your vehicle being destroyed, you should be prepared to negotiate with your insurance company. You should protect yourself by following certain measures:

  • Get a repair estimate from an independent reputed repair shop. Ask them to list all the damages to the automobile, as well as the cost towards all the repairs, including labor and material.
  • Do your research and find out the value of your car by using either the Kelley Blue Book or by comparison shopping using same vehicle model, color, year etc.
  • Contact your local law enforcement authority and get a police report. This is very important if you are seeking coverage in the matter of theft or vandalism. Your insurance company will need the report to validate your claim.

With this information, you will be able to get the maximum amount for your totaled car. This is especially important if you don’t have gap insurance.

There is a likelihood that you might not agree with the settlement your insurance company offers. In that case, you have the following options:

  • Speak to an independent automobile appraiser to establish the worth of your damaged vehicle.
  • Request your insurance company to reopen the case if you are financially unable to replace your vehicle with a comparative model within a month because the settlement amount is too low.
  • If nothing works, you might consider hiring an attorney who specializes in auto insurance claims to represent you in court or get an arbitrator to liaise with your insurance company.

Always remember that these steps are going to take money out of your own pocket. So calculate the differences and be aware that any legal step you take could become a prolonged and expensive exercise.

Workings of Gap Insurance

Many people purchase gap insurance to avoid the hassle of negotiating with their automobile insurance company. If your car has been deemed a total wreck by the insurance company due to theft, accident, or other causes such as floods among others, gap insurance will cover the difference or the excess of your loan that is not covered by your regular auto insurance.

But make sure you read the fine print since gap insurance has some loopholes; depending on the state it has been purchased. For instance, in some states gap insurances applies only if your lease term is less than 84 months. In other states, gap insurance is capped at $50,000.

While most people do not purchase gap insurance to save money since it is optional. Finance companies are increasingly requiring borrowers to purchase this additional insurance as a condition for offering any car loan.

Gap Insurance: Necessary or Not

While gap insurance is largely optional, it does make sense to purchase for certain buyers. There are some of the conditions that make gap insurance an attractive protective measure. If you have made a low down payment towards your car, it means that you owe a large amount to the finance company.

If you bought a certain car that depreciates in value very rapidly, it can mean a huge difference between the cost of the car and the ACV. If you are leasing a car, you are still responsible for the cost of the car.

Whatever your reason for seeking insurance that will cover your loss of value, type your ZIP code into our FREE tool and get the best offers in the market!