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GAP Auto Insurance and Other Related Auto Insurance Considerations

Sometimes after an auto accident and while representing a personal injury client; we find the auto insurance coverage they had does not nearly cover the auto loan pay back or the lease pay back. There is a “gap” between what is owed and what an insurance will pay if the auto is totaled. That is usually when the client might recall having “heard” of something called GAP insurance when they were in the finance office of the auto dealer.

GAP stands for “Guaranteed Auto Protection.” GAP insurance is very important when leasing, since you don’t actually own the car and usually don’t put down a large down payment. If you have an accident, your insurance will pay you the current market value of the car, but not the total amount of what you owe the finance company. This leaves a “gap” in your coverage, an amount that you still have to pay.

Let’s say your $30,000 car is totaled in an accident, you still could owe as much as $10,000, after your insurance pays off your finance company.

GAP insurance is important for leasing. However, if you make a small down payment or do a “zero down” deal when you buy a car, you might also consider a GAP policy. That is because usually the car’s depreciation outpaces your monthly car payment. For example, if you buy a car for $20,000 and put no money down, the car might be worth only $14,000 a year later, even though you still owe $19,000. If an accident totals your car, you will be responsible for paying the $5,000 difference to the lender.

Therefore, GAP insurance for purchases especially with the “0” down and a “…..low monthly payment….” is becoming increasingly important, even though most car buyers have neglected it. Leasing companies require GAP insurance, so it is usually included in the contract. If GAP coverage is included in the car lease, check to see how much you’re paying for it and compare with other insurance companies. Sometimes lease contracts may include a “GAP waiver,” which protects you from GAP charges in the event the leased vehicle is declared a total loss. That eliminates the need for an actual GAP policy. Therefore, it is very important to read the fine print before you sign on the dotted line.

A few things to keep in mind when buying GAP insurance:

  1. Although most people purchase it when they begin a lease, some car insurance companies will sell GAP policies any time during the lease term or increase the amount of coverage.
  2. You must be in compliance with all terms of the lease.
  3. Your GAP insurance policy might not be honored if you don’t have collision and comprehensive insurance coverage. Furthermore, lease contracts generally require you to carry collision and comprehensive at all times.
  4. If someone steals your car or it’s totaled in an accident, carefully follow all of the requirements that your auto insurance company makes. For example, some companies require you to continue making car payments on your totaled vehicle until the money from the GAP insurance is paid out.
  5. Therefore when getting a car loan or lease, always remember to ask your insurance agent or loan officer about GAP insurance. If you have an accident, you’ll be glad you planned ahead.
  6. Finally, consider new car replacement coverage. This coverage may help pay to replace a new car that’s totaled. With this coverage, your policy may allow you to replace the totaled vehicle with a new one of the same make, model and equipment; but always read the fine print to be sure.

Please note the information identified herein does not create an attorney-client relationship. Further, the information provided herein is general information and not legal advice nor shall it be relied upon as a particular answer to your particular legal need. Mort who is originally from Philadelphia, attended an ABA credentialed law school, is a lawyer in California good standing, has an MBA, an active Nursing Home Administrator’s license and is a licensed Real Estate Broker in California. For questions or to make an appointment, call the Law Offices of Morton J. Grabel in Temecula at (951) 695-7700.

Written by Morton J. Grabel

For more information or to discuss your case please call the Law Offices of Morton J. Grabel, here in Temecula at (951) 695-7700. Mort is a graduate from an ABA & AALS Law School and has been an active member of the Bar of California for more than 20 years. He is presently the President of the Mt. San Jacinto/Hemet Bar Association.

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