After a car accident or truck crash, your first priority should always be to focus on your medical needs and make sure you are receiving necessary and appropriate medical attention. Your attorney will protect your rights, including obtaining payment for the repair or replacement of your vehicle. Whether your car or truck will be repaired or replaced, is mainly a function of the extent of damages sustained to your vehicle. If the damages to your vehicle are extensive and approaching the amount it would cost to purchase the same vehicle, then your truck or car will be totaled by the insurance company and declared a total loss.
When a vehicle is declared a total loss by the insurance company, you will receive a monetary payment equal to the replacement value of your vehicle. Depending on if you have a vehicle loan and the amount of the loan, receiving the replacement value of the vehicle could have a very unwelcome result. You could both be stripped of a vehicle and end up owing money to your lender. If you owe more on your vehicle loan than the replacement value of the vehicle, your lender, who is a lienholder, will receive the replacement value, which it will apply to your loan balance. You will owe the remaining loan balance. Thus, you will be both without a means of transportation and you will owe your lender the remaining loan balance.
For example, if your totaled vehicle has a replacement value of $20,000 and you owe $25,000 on the loan, the insurance company will pay $20,000 to your finance company or lender and you’ll end up owing $5,000 on the loan ($25,000 loan balance – $20,000 replacement value paid = $5,000 remaining balance on the loan.) You will then be left in a situation where you have no vehicle and you owe $5,000 to your lender. This is where gap insurance can partially help.
When you buy a car, many dealers attempt to sell you gap insurance for a small added cost. Many people elect not to purchase gap insurance because they want to pay as little as possible when buying a car. Others chose to purchase gap insurance to protect themselves in the even of a truck crash or car accident resulting in a total loss. Some people end up purchasing gap insurance without even realizing that they are buying it.
To determine whether you have gap insurance, your car or truck accident lawyer will examine your automobile purchase contract. If your truck or car accident lawyer determines that you have gap insurance, then after your truck or car is totaled and the insurance company pays for the replacement value, gap insurance will pay for any remaining balance that you end up owing to your lender.
The problem with most gap insurance, however, is that they usually set a limit on the amount of coverage. Typically policies have a limit of $1,500. With such a limit, in the above example gap insurance would pay only $1,500 toward the $5,000 deficiency balance and you would still owe your lender $3,500.
Finally, you may have a separate gap policy through your insurance carrier. You would likely know if you had this since you would have paid a premium for it. So you should check two places: (1) your contract for purchase of your vehicle; and (2) your insurance policy. Either or both of these may provide gap protection for you in the event of an accident where your car is declared a total loss.
