Understanding Gap Insurance

What is Gap Insurance?

Gap insurance is optional insurance coverage you can purchase generally through your lienholder or car dealership when you finance the purchase or lease of your new car. We all know that the moment you drive your car off the lot, it starts to substantially lose its value. In the event that you are involved in a collision in which your car is totaled and you owe more on your car than it’s worth, gap insurance helps to cover the difference between what the insurance company will pay you for your car and what you actually owe on it.

But I didn’t cause the wreck!

Usually, this seems unfair because in most cases the difference in the amount someone owes versus what they borrowed is reasonable. However, this isn’t always the case, and it’s impossible for the law to create a hardline rule for what is and is not a reasonable overage in what someone borrowed and what their car is actually worth.

Predatory Lending or Irresponsible Borrowing

In some cases, either due to predatory lending or irresponsible borrowing, an individual may owe an outrageous amount more than their car is worth, and the law has to reach the fairest solution for all parties involved. For example, when I was a very young lawyer, one of my clients financed a $30,000.00 vehicle for $45,000.00. So, when they were involved in a car wreck a week later in which their car was totaled, the person that hit them only caused $30,000.00 worth of damage. That person wasn’t involved in the decision to take out a loan for 150% of what the car was worth, and they didn’t cause $45,000.00 worth of damage, so it’s hard to justify why they should have to pay $15,000.00 more than the damage they caused.

Cars in rush hour with traffic at dawn

Actual Value vs. Replacement Value

In most states, including North and South Carolina, the at-fault driver is only responsible for the actual value of the car they total, not replacement value. I always tell my clients that the reason for this is that if the at-fault driver was responsible for replacement value then everyone would decide to replace their perfectly sensible Buick LaCrosse (like mine) with a BMW 5 series. If you or your loved one made a mistake and caused an accident, you would not appreciate the policy being reversed and having to pay for a BMW to replace a Buick.

Are You Protected?

At the end of the day, you and your lawyer are the only people who will look out for YOU, so it’s important to take the proper steps to act today to have the insurance you might need tomorrow. Gap insurance is optional and it’s not always offered to you unless you ask for it. So, you have to know to ask for it or else you might not get it. If your lienholder or dealership doesn’t offer gap insurance, you might wish to go shop for a separate gap insurance policy. Your car, homeowner’s, or renter’s insurance company might offer gap insurance, or you might wish to contact a local insurance agent. While you’re at it, this might be a good time to talk to your agent about what coverage you have in other areas and re-evaluate to make sure you feel adequately protected.

At the Law Offices of Jason E. Taylor, we have experienced personal injury attorneys ready to help you if you or a loved one has been injured in a car accident in North or South Carolina. Give us a call for a free consultation.



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