If your car was written off or stolen, would your insurance cover the entire amount owed?
Chances are this is not the case if you have taken out a loan for the majority of the price.
The solution is often GAP insurance, which can be a lifesaver for some drivers with high debts.
Unfortunately, many drivers don’t realize they need it until it’s too late.
Spencer Kidd is one of them.
He said his Toyota Avalon was stolen from a downtown parking lot earlier this year.
“It was found stolen and destroyed two days later,” he said.
Unfortunately, he was still busy paying back the loan – a lot of money.
“Almost $20,000,” he said.
But shortly after losing his car, he learned that his insurance would not cover the entire loan amount.
“Their last offer was only $13,000,” he said, “based on the value of the vehicle.”
That means he still owes over $6,000 because the value of his car didn’t match the amount he owed on his loan and because he didn’t have difference insurance (GAP insurance), officially known as “guaranteed asset protection.”
How GAP insurance can protect you
How does it work?
Quite simply, if your vehicle is stolen or totaled in an accident, difference insurance covers the difference between the amount owed and the actual cash value of the vehicle, according to Bankrate.com.
Shannon Martin, an insurance analyst at Bankrate, said GAP insurance costs an average of $100 to $150 per year, but it’s often cheaper to buy it yourself than from a dealer.
“If you make a small down payment or no down payment at all,” she said, “your car will lose value pretty quickly, so GAP insurance might be worth considering.”
If it sounds expensive, keep in mind that you may not need it forever.
“The older your car gets, the more you pay into your loan, the smaller that gap becomes,” Martin explained. “So at some point you can drop it from your policy.”
We asked Spencer Kidd’s insurer, First Acceptance, if they could offer him more for his Avalon.
A spokesperson said: “While the company understands Mr Kidd’s current situation, First Acceptance believes it has fully complied with its obligations.” (Full statement below)
Kidd, meanwhile, says he can’t afford another car at the moment and had to give up his job, which was a 20-minute drive away.
“I lost my job because of this,” he said.
Remember, this will not affect your credit if your car is stolen or badly damaged.
Make sure you protect yourself so you don’t waste your money.
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FIRST ACCEPTANCE INSURANCE STATEMENT:
“First Acceptance has offered Mr. Kidd and his lienholder the ACV for his vehicle less his $1,000 deductible. It appears that his outstanding loan is approximately $19,000, but the ACV for his vehicle is only $14,364. This means that the payment under the insurance policy for the vehicle is $13,364 (ACV – $1,000 deductible) and the company is obligated to pay that amount to the lienholder under the insurance policy. The ACV was determined using methods and sources permitted under Ohio law, and Mr. Kidd was provided with a copy of the total loss appraisal and claim settlement breakdown.
While the Company understands Mr. Kidd’s current situation, First Acceptance believes it has fully complied with its obligations to Mr. Kidd under the insurance policy and in accordance with Ohio law.”
First Acceptance Insurance
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