Without Gap Insurance your lender will hold you responsible for paying the difference between the actual cash value and the amount left on the loan.
If you happen to get into a serious accident, your car may be classified as being totaled. This will prompt your insurance company to pay you for the actual cash value of your car. Each insurance company will calculate the decision to classify your car as being totaled differently.
If the cost to repair the car and its salvage value is more than the actual cash value of the car, then they will always consider it to be totaled. However, some companies set the threshold a bit lower, ranging anywhere from 51 percent to 80 percent of the value of your car. Although companies usually set the benchmark themselves, some states have set guidelines for this purpose.
If your car is totaled, you’ll be given money to get a new one, an amount known as the actual cash value. This amount refers to the value of your car at the time it was involved in the accident. You should be aware that the amount you’ll be paid will be lowered based on your insurance policy’s deductible.
Unfortunately, some people are upside-down on their car loan at the time of totaling their car. Upside-down means that you’ll be paid less money than you owe on the remainder of your loan. You will still have to pay back the loan even if you’re unable to drive the car anymore.
This is where having GAP insurance can come in handy. If you have this type of coverage, then you won’t be responsible for paying the difference between your check and the amount of money you have left to pay the financing company.
Insurance companies will calculate the actual cash value of your cash after it has been totaled in an accident. It’s advised that you do not rely on their estimate alone. The more the actual cash value is, the more money you’ll be paid. That’s why you should be proactive and do some research yourself.
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