How does GAP insurance work after a car is totaled?
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UPDATED: Oct 19, 2021
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- A car is totaled when the vehicle is damaged beyond repair or when the cost to repair the car is so high that it exceeds the car’s value
- Any auto insurance company that is settling a claim for damage to a private passenger vehicle that has standard coverage is only obligated to pay the vehicle owner up to the car’s Actual Cash Value
- If you are upside down in your auto loan, it means that you owe more on the vehicle than the car is worth in the eyes of your insurer
- After a total loss accident, the insurer will only submit a payment for the amount of the car’s value to the lender
- When you carry supplemental GAP insurance on the car, you can file a claim against the coverage to pay for the difference
The auto insurance claims process can be difficult for drivers to navigate if they are first-time claimants. The process can be even more confusing when you get into a serious accident and your virtually new car is so damaged that it’s declared a total loss, because the price to repair it was set too high. Add in the fact that you were leasing the vehicle, and suddenly you have the makings of a financial melt down. You don’t want to be left paying the entirety of your loan balance with out any sort of assistance. This is why looking into what GAP insurance covers should be on your to-do list before you lease a vehicle.
While you’ll learn a lot of things from adjusters and agents, it’s still important to educate yourself before you have a claim so that you don’t have to learn from your mistakes, especially if those mistakes cost you a lot of money.
GAP, or ‘guaranteed asset protection’ is optional coverage that makes your life easy if you’re leasing a vehicle. There are extra costs associated with this type of insurance, but it’s worth it if you’re concerned about anything happening during the term of your lease. GAP coverage helps you with your loan payment in the event of an accident or theft. However, you need to be realistic when it comes to how much your vehicle is worth.
Your car is typically not worth as much money as you think it is. Even new car buyers who’ve just recently signed a sales agreement are shocked to learn that their cars are worth about ten percent less than they were a month ago.
Since you can’t predict when you’ll be faced with a loss, protecting yourself with adequate coverage and an insurance policy tailored to your needs is a must. We’ll go over what you need to know below, including the cost of GAP insurance, and when it is applicable.
Do cars depreciate faster than most other property types?
First of all, it’s important to understand that your car isn’t going to retain its value when you drive off the lot. Over a period of time, cars begin to depreciate in value. Most cars are only worth about 90 percent of what they were when the buyer signs the sales contract and ownership is transferred. This is also why your monthly payment is going to differ from someone who has the same vehicle, even if it’s a year apart.
The depreciation on a new car doesn’t end there. After a year, the car drops in value by another ten percent.
If your car is damaged in an incident or a crash, depreciation can affect how your claim will be handled.
Standard claims for repairs are handled by an insurance company’s physical damage adjusters, but if the repair estimates are high, the claim will be assigned to the total loss unit.
A car’s rate of depreciation has a direct effect on how a claim will be investigated and handled. If you have a newer model car and it sustains a great amount of damage, the senior adjuster will use tools and guides to calculate the car’s actual cash value.
If the adjuster sees that repair estimates are close to the valuation, they will delve deeper to decide if the car needs to be a total loss. This means that you would then need a replacement vehicle, and it’s going to be up to what sort of auto insurance policy you have that determines whether or not that is going to come out of your pocket. Certain GAP policies act the same way, but it’s best to check with both your auto insurer and your lease provider. The type of policy you have will determine what happens in the long run.
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How much will your insurance carrier pay to settle a total loss claim?
If you’re to blame for the loss, it’s your insurer that will settle the claim by paying out collision benefits. The insurance company only has to pay you what your car is worth. This is why time and effort are spent to value your car for insurance purposes.
The final valuation is called the car’s ‘actual cash value’ or fair market value.
Insurance companies won’t simply look at the lease balance of a car loan and issue a settlement check. The amount of the check that’s issued is strictly based on the vehicle’s value.
The payment will be made to the lender if there’s a loss payee clause on the contract. If the total payment is more than the balance of your loan, your lender will cut you a check.
If, like many borrowers, you owe more on your new car loan than the car is worth, you’ll be considered responsible for the difference. The claims check will bring the balance of the loan down, but the lender will still expect you to honor your debt and pay off the loan.
GAP insurance is a supplemental form of insurance that’s only available to lessees and borrowers. If you’re not leasing your vehicle, chances are you won’t even be offered any sort of GAP insurance policies. If you’re financing or leasing your vehicle, you should always take the time to determine if GAP insurance coverage is beneficial to you.
After you find out how the coverage works after you file a claim, you’re sure to see the value in it.
How do you file a claim against your GAP insurance?
You’ll only have to use your GAP insurance coverage when the value of your car is lower than the balance of your lending contract.
It’s not until after your physical damage claim is closed and the settlement check has been issued that you can even start filing a claim against your supplemental GAP coverage.
When you have submitted the payment to your lender, you need to ask the lender what’s due to pay said auto loan off. Then, you’ll have to get your claims paperwork together showing the car was totaled.
With the total loss documentation and the payoff of the loan in hand, your GAP insurer will be able to issue a check for the payoff balance to close the loan.
Does the difficulty depend on where you buy your GAP insurance?
If you buy coverage through the dealer, you’ll have to handle the claims process on your own. If, however, you buy your GAP coverage through your car insurer, everything will be handled by your adjuster.
This is just one reason why it makes sense to buy supplemental protection from your carrier.
You never want to be stuck paying for a car that you can’t drive, or being on the financial hook for a replacement. If you want to avoid this scenario, build a comprehensive insurance portfolio. If you are leasing a brand-new car and you want GAP coverage, start getting quotes today. Speak with an insurance agent, see what adding GAP coverage would do to your auto policy if you don’t already have it. The extra protection is generally worth the extra money spent, especially if it protects your lease. Take a look at the current market, and try to find an insurer and a finance company who would work well with you to stay within your budget.