How Gap Insurance Can Affect Your Car Accident Settlement

Gap insurance is a smart choice for anyone buying a car with a typical auto loan. Gap insurance pays off the rest of your loan if the car is totaled before you finish repayment. This protects you from having to pay “the rest” on a car that can no longer be driven. But what if your car is totaled by another driver and you have a rightful claim to a settlement from their insurance?

Insurance claims consider three general expenses when determining the settlement amount; the cost to repair or replace property, the cost of medical bills and recovery time, and the human experience regarding things like pain, deprivation, and negligence. But what if your “repair costs” are already covered by your own gap insurance policy?

Which insurance takes first place? Does your gap insurance reduce the settlement amount you will be offered by the at-fault driver’s insurance? These are important questions to ask.

Gap Insurance and Repair/Replace Costs

Gap insurance makes sure your car loan is paid off if the car is totaled before the loan is complete. But that is all it does. Gap insurance does not pay enough to replace the car unless your car purchase was very recent and most of the loan is still owed. Gap insurance also does not cover the cost of repairs if your vehicle is damaged, but not totaled.

These elements are worth considering. Your Gap Insurance payment cannot be more than you currently own on the loan – and is not enough to get you “back to even” in the aftermath of the wreck. You are still out a car – and whatever you paid for it – you just don’t also have a loan hanging over your head.

That said, gap insurance typically pays several thousand dollars, which may play a role in your settlement from the at-fault driver’s insurance.

The Purpose of an At-Fault Driver’s Insurance Settlement

The purpose of an insurance settlement after a car accident is to return you, financially, to where you were before the accident – within the limits of the policy. This means that other elements, like your own no-fault insurance policies, will be considered. However, it is up to the insurance adjusters, internal policy, and proven damage to determine whether your gap insurance will influence or significantly impact the settlement amount you are offered.

Will Gap Insurance Influence My Accident Settlement?

If Your Vehicle is Damaged, But Not Totaled

What if your vehicle is damaged, but not completely totaled? In this case, having gap insurance doesn’t come into play. If the vehicle can be repaired, then the cost of those repairs will be on the at-fault driver’s insurance and considered as part of your settlement. With simple mechanic bills or estimates, you can make a strong case to get the full amount (or up to the policy limit) to be added to your settlement offer.

If Your Gap Isn’t That Big

What if your car is totaled, but there wasn’t that much money left on the loan? In this case, your gap insurance payout will pay significantly less than the value of damage done by the accident. Your at-fault driver’s insurance is still responsible for the damage, and your settlement amount is less likely to be impacted if gap insurance was not a significant benefit to you.

When the Gap is Most of Your Car’s Value

What about if your gap insurance covers most of the car’s value? This is the situation where your gap insurance settlement is the most likely to be considered by the at-fault driver’s insurance to offset the settlement amount they must pay. If you were effectively recouped for your losses by another policy, the other insurer may not be obligated to “restore your status” concerning vehicle damage.

Paying the Difference in Value

The insurance company may consider the difference in value between your gap insurance payment and the value of the car. If your car is worth more than you had left on the loan (a normal situation), then the at-fault driver’s insurance may be on the hook for the rest of the value lost in the accident, even if they try to consider your gap insurance as an offset.

Getting the most from your insurance coverage and settlement after a car accident can be a challenge. Always go in with a full understanding of your policies and rights. For more interesting insights on the inner workings of insurance policies, contact us today.