Nowadays it is usual for people to buy cars on loan and in case one’s car is totaled in an accident it is good to have a gap insurance apart from the standard insurance. The gap insurance policy in reality covers the money one still owns from the loan of the totaled car after the insurance company has determined the cash value of the car of this person which was destroyed in an accident. So, what steps does a calculation of gap insurance benefit follow?
What It Means When Your Car is totaled?
You may have heard about cars that are “totaled,” but maybe you are not sure what that really means? A total loss might mean that the damage is bad to such an extent that it would cost more to repair the car than it’s worth. However, the details tend to vary from one insurance company to another, so it is a good idea to check what a total loss would mean for your car by asking your insurance agent.
What Your Car is Really Worth?
Although they are not in principle marked as “high-risk” investments,few things are guaranteed to lose money like new cars. From the moment, you sign the papers on and drive it off the lot, it loses about 9 percent of its original value. But it does not even stop there; however clean you keep it, within a year its value will be another 10 percent less. In the end, the insurance company will determine what your car’s worth is and it surely will be less than the loan you still need to pay.
Other aspects of gap insurance benefit calculation
A GAP benefit is calculated by using the lesser of the scheduled payoff balance or the actual payoff balance under your original financing agreement, minus certain items. These items include such things as the value of your vehicle at the time of loss, any refunds owed to your finance company due to the early termination of other cancellable products, such as credit insurance and service contracts, any portion of your auto insurance deductible that exceeds a specified amount, and amounts deducted from the auto insurance carrier’s total loss settlement to account for prior, unrepaired damage to your vehicle.
An example of how it all works
For example, Jimmy’s car is worth $15,000. However, he still has to pay a total of $20,000 worth of car payments. In the case that Jimmy’s car is totaled as a result of an accident or theft, his insurance policy will reimburse him with $15,000. As Jimmy owes a car loan of $20,000, however, he will still be $5,000 short, even though he no longer has a car. A gap insurance would take care of these $5,000 or in other words the gap insurance policy. would cover the $5,000 “gap”, or the difference between the money received from reimbursement and the amount of money still you still owe to the car financing company.
written by gapinsurancequotes on 2017-03-20