As we all know, the minute you drive a new car off the lot, it begins to depreciate and continues to decline in value as more miles are put on the vehicle. In fact, it is estimated that a new car can lose up to 10 percent of its value as the tires hit the street from the sales lot. Unless you put down a large down payment, this can leave you with an automobile that is worth less than what you owe.
What if you are in an accident within the first few years of financing your car? Does the auto insurance company have to pay off the full amount you owe even if you owe more than the fair market value?
Unfortunately, unbeknownst to most consumers, the answer is NO. This is true for both purchased and leased vehicles and can leave you high and dry in the event your car gets totalled in a traffic collision. Most auto insurance policies only provide collision coverage for the fair market value of the car as calculated by them through market surveys of sales of other similar vehicles.
The solution to this problem is something called “gap insurance”. This type of coverage is usually offered at the time of financing the vehicle as an additional protection to pay off any difference between the value of the motor vehicle and the amount financed. The policies offered by car dealerships, though, can sometimes be pricier and not the best bargain. Gap insurance can also be purchased separately or many major auto insurance carriers including Geico, Progressive, State Farm, Allstate and Liberty Mutual are now providing this as either a supplemental coverage or as a package deal. Different insurance companies have different names for the coverage including “total loss payoff” or “loan/lease payoff insurance”. As an automobile accident lawyer, I can tell you that many of my clients wish they had purchased this type of coverage, so, I thought I would provide a depreciation calculator and a list of potential insurance providers for this coverage as a resource
Gap Insurance Providers: