How Does GAP Insurance Work After a Car Is Totaled?

Proper insurance on your new or pre-owned car can make all the difference when the unexpected happens. It’s important to have an understanding of how your insurance coverage works, too. Let’s say you have GAP insurance — how does GAP insurance work after a car is totaled? Basically, it comes into play for a total loss as follows:

• Your standard insurance policy will cover you for your car’s current value.
• If this payout amount from standard insurance is less than what you still owe on your car loan, then GAP insurance kicks in and covers the difference.

Make sense? Here’s an example. You took out a $25,000 loan, and your vehicle is valued at $22,000 at the time of your total loss collision. Based on these numbers, your standard insurance policy pays out $22,000, leaving you with $3,000 on your loan. With GAP insurance, though, you won’t have to worry about paying that off, because it covers the gap in value.

What Does It Mean When a Car Is “Totaled”?

Now that you have a sense of how GAP insurance works if your car is totaled, you may be curious about what constitutes a total loss in the first place. Essentially, when a car is totaled, the damage is so severe that the cost of repair would exceed what the car is worth. Different insurance companies have different definitions of a total loss, though, so it’s a good idea to connect with your agent to understand how they determine when a car is totaled.

Is GAP Insurance Required?

Unlike general auto coverage, GAP insurance is not required to drive in the Pickerington area. So, if it’s not required, then when does it make sense to have it? GAP insurance is most useful in the early years of car ownership when you take out a loan to cover the cost. That’s because your car depreciates as soon as you drive it off the lot after purchase. Without GAP insurance, you would be responsible for the difference in your car’s value and loan balance if you get into an accident. GAP insurance protects you in these unfortunate instances and could save you thousands on a car you can no longer drive.

Ask Your Insurance Questions at Byers Collision Center

Byers Collision Center is your go-to source in the New Albany area for all things collision and insurance related. Get in touch with our team if you have any questions.