If your vehicle is declared a total loss after a crash, your insurance company should cut you a check for the market value. However, what happens if you still owe more on the loan or lease than what your car is worth? How do you pay off the loan or lease?
This is where Guaranteed Auto Protection (GAP) insurance comes in. It could be a financial lifeline for those who still owe a significant amount on their loan or lease.
If you or a loved one were involved in a car crash that resulted in an insurance company declaring your vehicle a total loss, you may be eligible for compensation.
Have an auto accident legal question? Call (817) 920-9000
What is GAP Insurance?
Also known as a gap waiver or debt cancellation agreement, this type of insurance coverage is not mandatory. However, because vehicles often lose about 20 percent of their worth within the first year of purchase, many people choose to buy GAP insurance in case they are involved in a serious accident while they still owe a lot of money on their loan or lease.
According to the Insurance Information Institute, people who lease or finance a car with a loan of more than five years should purchase a debt cancellation agreement policy. Buying this coverage is also recommended if your down payment is less than 20 percent of the cost of the vehicle or if you have any negative equity from a previous loan in your new vehicle loan.
How Does it Work?
GAP insurance covers the difference between what you owe on your car and how much the insurance company pays you for its market value, which is usually determined by a claims adjuster.
If you leased or financed your vehicle when you purchased it, chances are you owe more on your loan than what a claims adjuster says it is worth (unless you are close to the end of the loan). If you do not have GAP insurance, you could be on the hook for whatever you owe the bank when you financed the vehicle. That amount could be thousands of dollars, and many people do not have that amount of money available.
How Do I Buy GAP Insurance?
In Texas, GAP insurance can be purchased from an insurance company or through the car dealership where you bought the vehicle. Not every insurance company is licensed to sell GAP insurance, so be sure to shop around and see which companies offer it and what type of losses they cover. Some companies will not pay out GAP coverage for theft, certain accidents and natural disasters. It is important to know how you are covered.
GAP coverage from a dealership is usually more expensive than coverage purchased from an insurance company. You may also have to pay interest on that coverage because it is added to your loan.
However, if you purchase the insurance through the dealership, Texas law prohibits the seller from charging consumers more than five percent of the loan amount. You should have 30 days after the initial purchase to cancel the coverage and receive a full refund.
It is very important to read all the terms and conditions when buying a new vehicle, including terms and conditions for GAP coverage, such as:
- Total cost of the debt cancellation agreement
- How many months or years the GAP insurance coverage is extended
- The procedure to file a claim with the company offering the insurance
- How much time you are allowed to file a claim after your vehicle is determined to be a total loss
- What you need to do if you want to cancel the GAP insurance coverage
We Are Prepared to Help
If your car insurance claim was denied and you find yourself in a dispute with the insurance company, give us a call today to schedule a free consultation. Our experienced attorneys may be able to help you pursue full compensation for your damages.
Our auto accident attorneys work on a contingency basis, meaning we bear the upfront costs of managing your case and you do not pay us anything unless we win your case.
Call us today at (817) 920-9000.