You’ve likely seen car insurance ads on TV where an accident victim talks about how their insurance company is only going to pay for a fraction of their car after it’s been totaled in an accident. Although this does happen to many people, it may not be because they chose the wrong insurance company; it often stems from not having the right type of coverage.
Losing your entire car in an accident and only receiving a percentage of its value from your insurance company is tough. You’ve already lost your means of transportation, and now you have to come up with extra money to get a new car and pay off the remaining balance on your auto loan if you had one. Learn more about the different coverage types available so you can protect yourself financially if you end up in an accident.
Comprehensive and Collision Coverage
When you get a car loan, the lender will require that you get comprehensive and collision insurance coverage so that the lender will still be able to get their money back if the car securing that loan is seriously damaged or destroyed in an accident. Most lenders will not extend an auto loan unless this type of coverage is purchased. If the coverage lapses while you’re still paying on the loan, the lender may be able to “call the loan,” making the entire balance due within 60 to 90 days or obtain insurance themselves and add it to your loan payment.
Under comprehensive coverage, your insurer will pay out your vehicle’s value it it’s stolen, damaged by fire or vandals, or damaged because you collided with an animal, such as a deer. Collision coverage is just what it sounds like: the insurer covers the cost of fixing your car if it’s damaged in a collision. If, however, the cost of repairing your car exceeds its value, the insurer normally pays out the total value of your car instead, which is considered “totaled” and not worth repairing.
The trouble people get into with these types of coverage is that in both cases, the insurer only has to pay you the fair market value of your car when it’s completely destroyed or considered too expensive to repair. Cars depreciate quickly, so the fair market value is often still less than you owe the auto lender. This means that you are responsible for paying the lender the difference between your loan balance and what the insurance company has paid you, even though you no longer have a car and may be speaking to a personal injury lawyer in Lynnwood about what happened.
Some insurers now offer vehicle replacement coverage, which is supposed to provide you with enough money to buy a similar car if yours ends up totaled. This type of coverage is not very common yet, so you may want to speak to your insurer to see if it’s offered.
Gap coverage is another way to protect yourself in the event that your car is totaled before you’ve fully paid the auto loan off. This coverage will raise your premiums, but it does cover the gap between the balance on your auto loan and the fair market value of your car in the event your car is rendered a total loss.
New vehicles lose their value quickly, and that kicks in the minute your drive the car off the lot. When you finance all or most of a car purchase, the fair market value of your car will inevitably end up being less than what you owe on your auto loan. Gap insurance coverage can help protect you in the event that your car is destroyed before you pay off your auto loan, so consider having this on your policy.
A car accident can cost you in terms of finances and your health in the long and short terms. Along with the loss of the car, you can end up with medical expenses, time lost from work, and other money drains. If you’re a victim of a car accident, talk to an experienced personal injury lawyer in Lynnwood about your case and your rights.