Florida Law does not require Gap Insurance, although lenders may require you to purchase Gap insurance as a condition to a car loan or lease. Even if not always required, Jupiter and Port St. Lucie drivers should be aware of this type of coverage.
When Would Gap Apply?
Unfortunately, bad things happen even to careful, good drivers. Vehicles can be stolen, destroyed in a hurricane or natural disaster or become totaled due to a car accident. If that happens, and your insurance claim payout is less than your car is worth, you may still be on the hook to pay back your loan for a car you no longer drive.
When it comes to car crashes, many drivers mistakenly assume that, in the event their car is totaled, the at-fault driver’s coverage will pay off their car loan and get them into a new vehicle. There are several reasons why that often is not the case.
First and foremost, under Florida law, drivers are only required to carry $10,000.00 in property damage liability coverage to cover damage they cause to someone else’s vehicle. Many times, this is an inadequate amount.
There is another major factor at play: depreciation of your vehicle. According to Edmunds.com,
the average car depreciates 11 percent as soon as it leaves the dealer’s lot. After twelve months, it is worth 20 percent less.
Lynne McChristian, a spokeswoman for the Florida section of the Insurance Information Institute explains why Gap may be a worthwhile add on to your insurance policy. “As soon as you drive your brand-new car off the lot, it loses value.” In particular, “if you didn’t put much money down on it, then there is a gap between what it’s worth and what you still owe. Simply, the smaller the down payment, the more you need in gap insurance.”
What is Gap Coverage?
Gap, which stands for “guaranteed asset protection” is an add-on type of coverage which provides coverage for the difference between how much you owe on your car and how much your standard car insurance policy will pay in a claim (the depreciated value or actual cash value at the time of the loss.)
Gap is meant to be used in conjunction with collision coverage or comprehensive coverage.
In other words, a standard auto insurance policy only pays what a car is worth at the time of the accident or theft. When you owe more on your car loan or lease than that, gap coverage is meant to come to the rescue to pay the rest of the lease or loan off.
What is Actual Cash Value?
Insurance policies will help pay for the replacement of your vehicle if there is a covered total loss up to the limits of the policy and the car’s actual cash value (ACV.) ACV is equal to the cost of the car when it was new, minus depreciation for age, mileage, physical condition and other factors.
Unfortunately, after even a short time period, the ACV of your car can be thousands less than what you paid for it, which can leave you with a large loan balance.
What Gap Does Not Cover
Having Gap insurance will not protect you in all instances. Here is a list of things that Gap insurance will not cover in Florida:
• A new vehicle’s down payment;
• Vehicle payments due to financial hardship, job loss, disability or death;
• Car repairs or engine failure;
• The value of your car or balance of a loan if your car is repossessed;
• A rental car while your car is in the shop; and
• Extended warranties you add to your car loan.
How to Buy Gap Insurance in Florida
You can purchase Gap insurance from various sources. You should keep in mind the cost, features, benefits and convenience of the various gap insurance options:
• Dealership: While a dealership’s gap insurance may have higher upfront costs, often times there are no deductibles. Some dealers may offer to pay off loan amounts on a trade in car, although some restrictions may apply.
• Insurance Company: Gap insurance through an insurance company directly may mean cheaper premiums, but may have a deductible.
• Banks and Credit Unions: Financial institutions can also sell consumers these types of policies. They may also offer lower premiums or extra features if you finance your car through them.
You should also be aware of the fine print on various gap policies. Sometimes there are limitations on what they will pay depending on how upside-down you are in your car loan.
If you have been in an auto accident and your vehicle has been totaled, an auto accident attorney can provide the necessary assistance to help with the damages to your car and any personal injuries you or a loved one has suffered.