What Is GAP Insurance And Do I Really Need It?

If you have a loan on your vehicle, gap insurance can be invaluable if your vehicle is badly damaged and deemed a total loss after an accident. Due to rapid depreciation, a vehicle’s fair market value is very often less than what is owed on the note. Just as you would be upside down on a trade, so would you owe more than the vehicle is worth in a total loss situation. Gap insurance makes up that difference, or pays the “gap” between what you owe and what your vehicle is worth. For example, if your vehicle has a fair market value of $10,000, but you still owe $12,000, gap insurance would pay the additional $2,000 to your lender to pay off the loan.

An insurance company is only legally responsible to pay for the fair market value of your vehicle. It doesn’t matter if it is the other party’s insurance company on a liability claim or your own insurance company on a collision coverage or uninsured motorist claim. It also doesn’t matter how much you still owe your lienholder. Fair market value, basically what the vehicle is worth, is all they have to pay.

So if the insurance company doesn’t have to pay off your note, who does? You do. It may not seem fair, the accident wasn’t your fault, but you’re getting stuck with having to pay off your note, but’s that’s the way it is. You can pay off the note in one lump sum if you can afford it, otherwise, you could find yourself making monthly payments for a vehicle you no longer own. To avoid this situation, you can purchase gap insurance from your own insurance company, or from the lender for a few dollars more added to your monthly payment.



Earl K. Straight serves victims of Texas car and truck accidents in Austin, Round Rock, Bastrop, Cedar Park, Buda, Kyle, Taylor, and elsewhere in Travis County, Williamson County, Hays County, Lee County, and Burnet County, including accidents on I-35, Highway 1 (Mopac Expressway), Highway 183, and other Texas roadways.