Why Gap Insurance Might Be Right For You

About Gap Insurance: You bought the car of your dreams. Two months later the unthinkable happens and you are in an accident. Your vehicle is beyond repair and the insurance company is paying you only for the value of your vehicle?

Unfortunately, the law states that the insurance company only has to pay for the value of the vehicle nothing more. Thereafter, you are on the hook for the balance as you signed a contract agreeing to pay down the loan amount which they legally can go after you for, if you don’t pay.

Hopefully, you are never placed in this situation where you are without a vehicle, injured and now have to continue to pay on a vehicle you can’t use anymore and most likely still need another vehicle. A great way to avoid is to purchase what is called “Gap Insurance.”

What is Gap Insurance?

Gap insurance is sometimes called loan-lease payoff coverage or auto loan/lease coverage. It is just like it sounds, it covers the gap between what your vehicle is worth and what you owe on your vehicle. So in the situation above the Gap Insurance company steps in after the car insurance company and pays off the balance you owe. This is especially helpful when you have a newer vehicle and right when you take it off the lot the depreciation starts and you already owe more then what it’s worth.

Gap insurance is an insurance policy that covers the difference, or gap, between what you owe on a car loan or lease and the actual cash value of the vehicle. In the event of a total loss or theft of the vehicle, the insurance company will pay out the actual cash value of the car at the time of the loss. However, if the amount owed on the loan or lease is greater than the actual cash value of the car, the policyholder would be responsible for paying the difference out of pocket.

Gap insurance helps protect car owners from this financial burden by covering the difference between the actual cash value of the car and the amount still owed on the loan or lease. It is typically offered as an add-on to an auto insurance policy, and the cost of the coverage will vary depending on the insurer and the value of the vehicle. Gap insurance is usually recommended for people who have leased a car or bought a new car with a low down payment or long-term loan, as these situations can leave you owing more on the car than it is worth.

Are You Covered? Car Insurance Plans You Need!

Texas resident drivers are required by law to have some form of vehicle insurance along with proof of that insurance within their car. Although many states require you to have specific protection plans, Texas only requires you to have liability coverage which does not fully protect you or others in the case of an accident. Having such things as Uninsured Motorist Coverage/Underinsured Coverage (UIM), or Personal Injury Protection (PIP) can give you the extra confidence you need to comfortably sit behind the wheel.

The Insurance Research Council estimates that one in every seven drivers in the U.S. is uninsured. Many states are required to include these other protection plans in conjunction with their automobile insurance, however not all states do this including our own Texas. Therefore these programs have gone largely unnoticed by the majority of Texas drivers in which case they only learn about them after it’s too late. Although it would be nice to not have to worry about these kinds of things, the sad truth is that there are many people out there driving without coverage, and it falls on you the driver to ensure that you have done what you can in order to be protected and worry-free.

Full Coverage?

Full coverage is one that may be familiar to most of you, in fact, many of you may already have full coverage insurance and are under the impression that it is all you need. This coverage provides a number of coverages that protect you, specifically liability, comprehensive, and collision coverages. However, it doesn’t offer all the protection necessary to handle certain circumstances and can be misleading. Here are a few things not protected by full coverage:

medical payments
uninsured/underinsured motorists
emergency road service
rental car coverage
gap coverage

Take a look at these other options that can be purchased and see for yourself why it is crucial and beneficial to buy them.

Uninsured/Under-insured Motorist Coverage

All too often after the case of an accident, damages and other expenses may add up to more than either party would initially expect; resulting in significant costs that aren’t covered by traditional liability / full coverage insurance policies. There are two types of uninsured motorist insurance:

Uninsured Motorist Bodily Injury (UMBI)
- Pays for covered medical expenses, lost wages, and other damages experienced by you or your passengers in a covered accident
Uninsured Motorist Property Damage (UMPD)
- Pays for covered damage to the car and other property

This type of insurance will take care of you in the case that the other driver is unlicensed and uninsured. It may also protect you if you aren’t in your car. For example, if you are in an accident and are not in your own personal vehicle. If you’re walking across the street or riding your bike the bodily injury portion may help with your expenses. That goes for unusual situations too. For instance, a hit and run or a stolen vehicle. Let us say that somebody steals someone else’s car and hits yours in the process. Nationwide states the company that covers the stolen vehicle won’t compensate you because the said vehicle was taken without consent. These situations are covered by the above-mentioned protection plans allowing the driver to be prepared for the worse.

Personal Injury Protection (PIP)

PIP is similar to that of the UMPD & UMBI, however, encompasses a broader spectrum of financial liability. It covers expenses not covered by your health insurance. That includes income continuation, loss of services, funeral expenses, and even child care expenses. Some people prefer not to get these insurance additives because it may increase the price of their insurance. On the good side, PIP is considered a no-fault kind of insurance. This means that it is against the law for an insurance company to raise your rates for using it. This is often overlooked and therefore not usually considered.

Even though many people prefer to save their money and make do with the minimum requirements, this isn’t sufficient. Having them added to your car insurance will help you prepare for the unpredictable. Doing so also allows drivers to ensure they’re prepared for the worse, regardless of who’s at fault for a car accident. Saving money may sound practical now, but in the long run, your safety is what matters most.

Should I Get Loan-lease Payoff Coverage ?

The simple answer is “yes.”

Whether or not you should get loan-lease payoff coverage depends on your individual situation and financial circumstances. Here are some factors to consider:

How much did you put down on the car? If you put down a small down payment, you may owe more on the car than it is worth, making gap insurance a good idea.
What is the length of your loan or lease? The longer the loan or lease, the more likely it is that you will owe more on the car than it is worth at some point during the term, making loan-lease payoff coverage a good idea.
What is the value of your car? If you have a car that depreciates quickly or is more expensive, loan-lease payoff coverage may be more important.
Can you afford to pay the difference out of pocket? If you can’t afford to pay the difference between what you owe on the car and its actual cash value, gap insurance may be a good idea.

Ultimately, it’s up to you to decide whether or not gap insurance is worth the cost. If you think you may be at risk of owing more on your car than it is worth, and you can afford the cost of the coverage, it may be a good idea to get gap insurance to protect yourself financially. It’s always a good idea to talk to an insurance agent or financial advisor to help you make an informed decision.

Is Auto Loan/Lease Coverage Common Among Car Owners?

According to a report by the National Association of Insurance Commissioners (NAIC), about 20% of auto insurance policies sold in the US include gap insurance as an optional coverage.

There could be a number of reasons why more people don’t get gap insurance. Here are a few possibilities:

Lack of awareness: Some people may not even be aware that gap insurance exists or that it’s an option they can add to their auto insurance policy.
Cost: Auto Loan/Lease Coverage can add to the cost of an auto insurance policy, which may deter some people from adding it.
Risk tolerance: Some people may feel that the likelihood of a total loss or theft of their car is low, or that they could afford to pay the difference out of pocket if it were to happen.
Loan or lease terms: Some lenders or leasing companies may require gap insurance as part of the financing agreement, while others may not, which can impact whether or not people get Auto Loan/Lease Coverage.

It’s important to remember that the decision to get gap insurance is a personal one that depends on individual circumstances and financial situations. If you’re considering whether or not to get gap insurance, it’s a good idea to talk to an insurance agent or financial advisor to help you make an informed decision.

What Happens If You Are In An Accident and Have Gap Insurance?

If you are in an accident and have gap insurance, here’s what typically happens:

You file a claim with your auto insurance company to report the accident and any damages or injuries.
Your auto insurance company will assess the damage to your car and determine its actual cash value (ACV) at the time of the accident.
If the ACV of your car is less than the amount you owe on your car loan or lease, your gap insurance policy will kick in to cover the difference.
The gap insurance company will pay the difference between the ACV of your car and the amount you owe on your car loan or lease, up to the coverage limits of your policy.
You will still be responsible for paying any deductible or other out-of-pocket expenses associated with your auto insurance policy.

It’s important to note that the specific details of how your gap insurance policy works may vary depending on the insurance company and the terms of your policy. It’s always a good idea to review your policy and understand what it covers before an accident occurs.

Gap Insurance In the News & Media

Not long ago, tennis phenomenon and all-time great Venus Williams was involved in a tragic motor vehicle collision that took the life of one of the motorists that was involved. When the story was initially reported, news incorrectly circulated that Ms. Williams was at fault for the collision, and was responsible for the death of the other motorist. While everyone’s first concerns are with the person who was fatally injured, it is important to realize that car accidents can change lives in an instant and that it is important to be properly insured to ensure that, if you are ever responsible for a collision, there is adequate insurance to cover the event. Luckily, after further review, it was found that Ms. Williams was not at fault of the collision. If it was in fact concluded after the initial reports that Ms. Williams was, in fact, responsible for the collision and subsequent fatality, Ms. Williams may have been exposed to the possibility that she was underinsured, meaning she didn’t have enough injury to cover the damage she caused to property or otherwise, in this case, bodily injury that resulted in the death of the other motorist. If Ms. Williams did not have the proper insurance to cover the event, she would have been held personally responsible for the amount of damage that exceeded her policy limit. An example like this should be a reminder to all, that it is important to make sure you have proper liability limits, as well as underinsured motorist coverage, and PIP protection.

Big Injuries Small Insurance Policy

Many times we have clients that are seriously injured because of someone else’s negligence. Unfortunately, the insurance coverage/ or policy for the at-fault person is not enough to compensate for the injuries. Clients will ask where else they may recover damages and if it is possible to sue the other driver.

It is important to understand why there may only be a $30,000 insurance policy in place to compensate an injured party. Texas law determines the minimum amount of vehicle liability coverage. Texas Transportation Code Section 601.072 provides that:

[T]he minimum amounts of motor vehicle liability insurance coverage required to establish financial responsibility under this chapter are:

(1) $30,000 for bodily injury to or death of one person in one accident;

(2) $60,000 for bodily injury to or death of two or more persons in one accident, subject to the amount provided by Subdivision (1) for bodily injury to or death of one of the persons; and

(3) $25,000 for damage to or destruction of property of others in one accident.

This means that no matter how great your injuries are, the at-fault driver may only have $30,000 of coverage to protect you. To recover that money the insurance company is going to make you sign a release. That means if you take the insurance money you may be giving up your right to sue.

So, is it ever a good option to not take the insurance money and sue the driver? That depends.

Texas is considered a “debtor-friendly” state. That is, Texas law protects most of its residents’ assets from creditors.

Most importantly Texas homesteads are exempt from creditors. In addition to homestead, Texas law protects most personal property. For instance, the following property is safe from creditors: home furnishings, including family heirlooms; farming or ranching vehicles and implements; tools, equipment, books, and apparatus, including boats and motor vehicles used in a trade or profession; certain amount of jewelry; two firearms; two horses, mules, or donkeys and a saddle, blanket, and bridle for each; 12 head of cattle; 60 head of other types of livestock; and 120 fowl; household pets; and much more.

If the responsible party has assets in excess of the exempt property it may be worthwhile to sue.

Liability Insurance

This is the auto insurance coverage you need to cover a bodily injury or property damage you may cause another person when operating your motor vehicle. The amount of coverage or limits is determined by the state you live in. Make sure your insurance policy covers at least what is required as a minimum in your state!

Underinsured/Uninsured motorist coverage

This is the auto insurance coverage you need when someone causes bodily injury or property damage to you while operating their vehicle, but they do not have enough insurance, or any insurance at all, to cover your damage. It is important to make sure your auto insurance policy package includes this supplemental coverage.

PIP- PIP

Also known as personal injury protection, is a no-fault coverage that can be added to an insurance policy to take care of medical bills associated with a collision a person was involved in, regardless of if they were at fault of the collision. This is important to coverage to have to make sure your medical bills can be addressed to a certain degree, whether or not you were the reason for the collision.

Personal injury protection is a branch of auto insurance that deals with the passengers of a vehicle in the event of an accident. It covers the expenses incurred for medical bills and funerals of an accident occurs.

The difference between personal injury protection and health insurance is that health insurance only covers the medical expenses if the driver is at fault while personal injury protection does so irrespective of who the fault is from. This explains why personal injury protection is also called a “no-fault” coverage or insurance.

Another distinguishing factor is that personal injury protection also pays for “lost fees” in cases where the accident victim is bedridden and unable to work for some time due to the injuries sustained. However, personal injury protection is limited to car injuries alone. The victim may be a passenger, a pedestrian or even the driver of the vehicle but the only constant factor is the cause of the accident – a car.

Before approving the funds for treatment, the insurance company may have the accident victim examined by medical personnel or (in cases of emergency), issue a partial approval. One thing you should know though is that PIPs don’t cover all expenses. In Florida, it only takes care of 80% of the medical expenses and a sum of $10,000. Anything above that would have to be funded personally.

Do You Need a Personal Injury Protection?

Personal injury protection is not a must-have in most states. As a matter of fact, only 16 states in the United States request that every driver should have a minimum level of personal injury coverage. A PIP coverage takes care of most of the expenses resulting from an accident including:

Hospitalization.
Surgeries.
Lost fees and
Funeral expenses.

This, however, is not guaranteed in all states so it is essential to have accurate details on the policy for your state while considering getting a PIP coverage.

Summarily, personal injury protection insurance is not compulsory but it is advisable. It puts you on the safer side regardless of who is at fault in an accident. Also, depending on the state, a PIP may or may not be linked to your health insurance so speak with your insurance company before you get a PIP and ask as many questions as you would love to.

About Herrman & Herrman Car Accident & Personal Injury Lawyers

With over 100 years of combined experience among the legal team of Herrman & Herrman, P.L.L.C., our Texas personal attorneys have successfully resolved over 20,000 cases. When representing injured Texas residents, we fight for justice against wrongdoing and aggressively pursue the best resolution to complex personal injury claims.

We remain by our clients’ side, handling all aspects of their claims and attending to all legal, medical, and financial needs. That dedication is combined with experience, legal knowledge, and insight from a former insurance adjuster and several former insurance defense attorneys. Whether our clients are suffering from physical pain from an accident or the emotional grief of death, we treat clients with compassion. We put their mind at ease during difficult times by answering their questions concerning the length of their claim, medical bills, financial compensation and their overall need for a lawyer.

Start the road to recovery by contacting us for a free consultation and case evaluation.