Auto Gap Insurance – Why You Need It

image - upside down car accidentSeveral years ago my daughter purchased a used minivan as her family’s primary car. With two young children and a baby she needed the room and a reliable vehicle. Like many young couples, their lack of a down payment and no credit caused them to over pay for the car to begin with not to mention the outrageous interest rate.

Five months and just five payments after the purchase they were in an auto accident that totaled the car. No one was hurt but the minivan was a total loss. Of course, since they had financed the car, they were required to maintain full coverage auto insurance. It didn’t take long for the insurance adjuster to do their thing and settle up with my daughter and the auto finance company.

Well, settle up might be a bit of an over-statement. It seems that they were over five thousand dollars upside down with their auto loan. By that I mean they owed over $5,000 more on the car than it was worth. Like her, I thought full coverage car insurance payed the car off. That was a huge mistake thinking that. They, the insurance company, cut a check to the finance company for what they determined was the actual value of the car just before the accident. The loan balance was not a factor in this determination. This left a deficit of five grand that was her responsibility. Now not only had she lost her car but still owed $5,000 on a car that was junked. This, of course, prevented her from financing another vehicle.

Learning from my daughter’s mistakes

I was concerned that she was being taken advantage of so I called my own insurance agent for his advice. He said it was perfectly legal and that is how all car insurance policies work. “Even mine?“, I asked. He said, “Even yours, unless you purchased auto gap insurance“. Auto Gap Insurance? I had no idea what gap insurance was and he informed me that I didn’t have it on either car. In other words, I was just an accident away from being in the same boat as my daughter.

Here’s the part that almost made me fire my insurance agent and friend of over a decade. I asked how much it would cost to add the auto gap insurance to the car that I was still paying on. He said $2.97 A YEAR! For less than three dollars a year I could avoid a very huge problem and he never thought to mention it. There’s not any commission on three dollars so I guess it seemed unimportant to him at the time. Of course the rates will vary with different vehicles, who’s insured and other factors but you get the point.

I now have auto gap insurance and one less person I call a friend. If you are paying on a car the chances are you owe more than it’s worth to an insurance company. Call your agent and ask for a quote on adding automobile gap insurance. The name is different in different areas and different companies but they’ll know what you are talking about. You want to cover (insure) the difference between what is owed and the actual value of the car. That way if you are in an accident that totals the car it will at least be paid off. Funny how these things don’t come up when discussing insurance with the insurance company.

2 thoughts on “Auto Gap Insurance – Why You Need It

  1. Dana

    I’ve NEVER had a car insurance agent offer gap insurance in all the years we insured financed cars. Crazy how learning from someone else’s crisis can save us all so much grief. Thanks for the article.

    1. Brian Post author

      It’s really a shame when insurance agents act as if they are representing us and looking out for our best interest and they’re really just trying to sell the product with the highest commission.

      I should have updated that post but since then we actually ended up in the same position as our daughter only with the gap insurance. My wife totaled our Taurus that we owed about $9,200 on. The insurance company said the car was valued at $4.700. With the gap insurance (has many names), the car was paid off and we didn’t even have to pay a deductible.

      No one was hurt so it was actually a blessing in disguise. We bought her a used car with cash and now we have no car payments.


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