Having sufficient automobile insurance is a requirement for drivers in North Carolina. Including a personal umbrella policy can reinforce your standard insurance in the event that you are responsible for damages that are beyond the limits of your coverage and can help protect your bank account and other personal property. However, if you have purchased a new vehicle or are considering doing so, you may also want to consider purchasing a GAP policy to help you further prepare for the unexpected.
What is GAP Insurance?
Guaranteed Auto Protection, or GAP, insurance is an insurance policy you can opt to purchase with your standard insurance when you buy a vehicle. It is the difference between any balance that is owed on your vehicle and the cash value of your vehicle. Since it is only needed when drivers are upside down with their loans, or when the value of their vehicle has depreciated and is worth less than their loan balance, most drivers only need a GAP insurance policy for a short period of time.
Why Do I Need GAP Insurance?
Purchasing GAP insurance is advisable if you are upside down in your loan, which is a situation that can occur quicker and more easily than you may think. A newly purchased vehicle can typically depreciate in value by almost 30 percent within the first few months. If you were to get into a car accident that resulted in the total loss of your vehicle, any settlement your insurance company would provide would be inadequate because it would be short of what would be needed to pay off your auto loan.
Before driving your new vehicle onto the roads of North Carolina, you should speak with a GAP insurer regarding coverage if:
- The car you purchased can depreciate very quickly
- Your loan includes other expenses, like the outstanding loan balance for your trade-in
- You have an auto loan with a high interest rate
- You made a down payment that was less than 20 percent of the vehicle’s price
Understanding GAP Insurance: An Example
Suppose you decide to purchase a vehicle that costs $35,000. After making a $1,000 down payment and financing the rest of the balance at no interest for five years, you also purchase standard automobile coverage with a $500 deductible in addition to a GAP insurance policy.
While you are still upside down on the loan and currently owing $33,500, you are involved in a vehicle accident that totals your vehicle. After reviewing your auto claim, an adjuster decides that your vehicle is valued at $32,000. Your insurance company will offer you a settlement of the vehicle’s value minus your $500 deductible for a settlement amount of $31,500 and use the benefits of your GAP insurance policy to help close the gap between your loan balance and your insurance settlement. This means that your GAP insurance will pay $1,500, the difference between the vehicle’s value of $32,000 and the loan balance of $33,500, as well as the $500 deductible.
Drivers in Greenville, North Carolina and the surrounding areas should obtain the appropriate types of auto insurance policies that will provide them with financial protection if they are in a vehicle accident. An attorney may offer guidance about seeking other personal injury compensation from any parties whose negligent actions contributed to an accident.
Greenville, NC Auto Accident Attorneys
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