Automobiles lose value quickly. In fact, individuals who finance vehicles often owe more on their vehicles than their vehicles are actually worth. This is usually not a problem, but it can put individual in a financial bind if they total their cars before they earn equity in them.
When an individual totals his or her car, the insurance company may only reimburse the individual for the vehicle's current market value. This means, for instance, that if an individual's car is worth $15,000 when it is totaled, the insurance company will compensate the individuals $15,000 for the loss.
The problem with this for the driver is that he or she may owe more than $15,000 for the car. If he or she owes $20,000 on the vehicle, for example, he or she is still responsible for paying $5000 on the car after receiving a settlement from the insurance company.
Luckily, car buyers may have options for erasing this deficit, but they will need to plan ahead. Gap insurance cover the amount that will remain after an individual totals his or her car and receives a settlement from the insurance company.
From the earlier example, the individual who owes $20,000 on a car that is now only worth $15,000 will not have to pay the remaining $5000 if he or she has gap insurance. The gap insurance kicks in to cover the rest of the amount.
One potential drawback to gap insurance is that once an individual gains equity in the vehicle - that is, the vehicle is worth more than he or she owes - the gap insurance is effectively nullified. Drivers do not receive money on top if the insurance settlement covers the remaining balance on the vehicle.
If you just bought a vehicle, learn how gap insurance may benefit you from the Chicago auto insurance agents of Insure on the Spot today.
When an individual totals his or her car, the insurance company may only reimburse the individual for the vehicle's current market value. This means, for instance, that if an individual's car is worth $15,000 when it is totaled, the insurance company will compensate the individuals $15,000 for the loss.
The problem with this for the driver is that he or she may owe more than $15,000 for the car. If he or she owes $20,000 on the vehicle, for example, he or she is still responsible for paying $5000 on the car after receiving a settlement from the insurance company.
Luckily, car buyers may have options for erasing this deficit, but they will need to plan ahead. Gap insurance cover the amount that will remain after an individual totals his or her car and receives a settlement from the insurance company.
From the earlier example, the individual who owes $20,000 on a car that is now only worth $15,000 will not have to pay the remaining $5000 if he or she has gap insurance. The gap insurance kicks in to cover the rest of the amount.
One potential drawback to gap insurance is that once an individual gains equity in the vehicle - that is, the vehicle is worth more than he or she owes - the gap insurance is effectively nullified. Drivers do not receive money on top if the insurance settlement covers the remaining balance on the vehicle.
If you just bought a vehicle, learn how gap insurance may benefit you from the Chicago auto insurance agents of Insure on the Spot today.
James Witherspoon
No comments:
Post a Comment