Buying a brand new car off the lot is always exciting and can make you feel like you’re on top of the world. You saved, you did your research, and now you’re walking away with a car that’s entirely your own. It represents freedom and success.
Except, this exhilaration can come to a quick halt if you’re in an accident shortly after your purchase and your new car is totaled. You could now be looking at paying thousands of dollars out of pocket. Due to the depreciation on your vehicle, you will be responsible for covering the difference between the reduced market value of your vehicle and the amount remaining on your auto loan. That is why lawyer Jared Staver of Staver Accident Injury Lawyers, P.C. highly recommends investing in gap car insurance when you purchase a new vehicle.
If you are in a crash within the first year of owning your vehicle, you’re going to find yourself in a bind. The value of your vehicle depreciated a significant amount the minute you drove it off the lot – up to 10 percent. By the end of the first year, its value may be 30 percent lower. At that point, you probably owe more on the vehicle than it is worth. As Kat Tretina of Student Loan Hero found out, if your car is totaled in an accident within days of purchasing it or up to a year or so later, the amount you get from an insurer won’t be enough to pay off your auto loan or replace your car with the same make and model. You’ll be responsible for thousands of dollars in out of pocket expenses due to this difference and your deductible.
Imagine you bought a brand new car with no down payment for $40,000. However, within the first month, another driver hits you and your car is totaled. At the time of the accident, the actual cash value of your vehicle may be $34,000 – 15 percent below the original value. Yet you still owe $39,500 on your auto loan. This leaves you with $5,500 to pay out of pocket to your loan provider on top of your deductible. That is where gap car insurance comes in.
When you’ve saved up for months to buy a new car, you can’t afford to replace it days, weeks, or a few months later. However, that’s exactly what you will have to do if another driver totals your new car. Bodily injury and property damage insurance, which are required by law, won’t cover costs above the market value of your car. Neither will comprehensive or collision coverage.
You specifically need gap car insurance for this out-of-pocket expense. Gap car insurance is specifically meant to cover the difference between your vehicle’s market value and how much you need to replace it or pay off your loan. In the above example, your gap car insurance would cover the $5,500 you owed your lender.
It is important to buy gap car insurance if you:
You do not need gap car insurance if you bought a used vehicle that is a couple years old, you took out a small auto loan compared to the vehicle’s value, or you have a significant amount of cash savings to cover out-of-pocket expenses after a crash.
You can use gap car insurance in a few scenarios. You may need it after being in an accident caused by another driver. While you will receive the market value of your vehicle through that driver’s insurance, you will also need to file a claim with your own insurance provider. Once your claim is approved, you can receive the difference needed to pay off your auto loan or purchase a new car of the same original value. If you have comprehensive or collision insurance, you may be able to use your own insurance and your cap coverage if you cause an accident that destroys your vehicle.
Also, you may be able to use your comprehensive and gap car insurance if your vehicle is stolen and not recovered. Once your vehicle is stolen, file a report with the police and then a claim with your insurer. There may be a waiting period before your insurer will pay out to ensure the vehicle isn’t recovered. However, if you have gap insurance without a comprehensive policy, your lender may not pay you the market value of your vehicle, and instead only pay you the difference between the market value and your remaining loan amount.
If you’ve been in a car accident and now you’re trying to recover from injuries and get a new car, do not hesitate to reach out for help. Our car accident attorneys serve clients throughout the Chicago area, including Aurora, Elgin, Hinsdale, Joliet, Naperville, and Waukegan. The experienced lawyers of Staver Accident Injury Lawyers, P.C. can handle your insurance claims and negotiate for you to receive the maximum settlement possible.
For more information, call us at (312) 236-2900 to schedule a free and confidential consultation.