Not long ago, a couple came to see me who had recently purchased a new Mercedes Benz for the sum of $80,000.00.
Unfortunately, a week after they drove the car off the lot, they were involved in a car crash.
They had great insurance themselves. Their policy limits were $300,000/$500,000 and they had a $1 million dollar personal umbrella policy. They were sophisticated consumers and had taken every reasonable step to protect themselves except – they had not purchased GAP insurance.
GAP insurance is insurance that covers the gap between what you paid for the car and the current value of the car.
In California, your and/or the ‘at-fault’ drivers auto insurance is only responsible for the fair market value of your vehicle.
The problem is that as soon as a car is driven off the lot the fair market value diminishes tremendously.
In this case, my clients put 20% or $16,000.00 down on their car leaving a balance due of $64,000.00.
When the insurance companies sent an appraiser to look at the car, it was determined that the car was ‘totaled’ which meant it was beyond the point of repair.
The insurance company paid the lien holder the fair market value of $68,000.00. (Actually, $64,000.00 was paid for the car lien and $4,000.00 to my clients directly.)
As can be seen, my clients put $16,000.00 down and only received $4,000.00 a week later.
This was an expensive lesson and it’s one I don’t want you to experience. If you buy a new car, insist on GAP insurance.
If my clients had purchased it, in this instance, the lien of $64,000.00 would have been paid, and my clients would have been returned almost all of their $16,000.00 down payment.