After a client is involved in an auto accident and their car has been declared a ‘total loss’ (generally means the damage exceeds 75 percent of the actual cash value of the vehicle), some clients incorrectly assume that their insurance company will pay off their outstanding car loan regardless of the value of the car.
If the market value of the client’s car is worth less than the outstanding car loan, this creates a ‘gap’ – usually in the thousands of dollars – for which the client owes. Unfortunately, this is when the client becomes aware of the value of ‘Gap (Guaranteed Auto Protection) Insurance’ – which serves to pay off the difference between the car’s actual cash value and the balance on the loan. Given the exposure to financial loss, when applicable, it is prudent to purchase, and have it included as part of the monthly car payment. Most auto dealerships offer gap insurance when the value of the car sold is less than the loan required to purchase the car.
In the alternative, for an additional fee, you may request a debt cancellation agreement from the dealership, bank or finance company. This is a contract between the lender and the borrower that cancels out a debt in the event of a listed condition or contingency. A debt cancellation agreement is not insurance coverage, but the end result is similar to gap insurance given the buyer is no longer liable for the remaining loan balance after property damage settlement.
If more information is required on this or any other auto accident related topic, call us at (240)676-4827.