Vehicles depreciate rapidly, and a vehicle that’s been involved in an accident loses value even quicker. Although auto insurance will pay for the repairs to a vehicle, standard full coverage insurance does not cover the loss of value a vehicle may receive after the accident occurs. There are two ways to recover the loss of value on a damaged vehicle: gap insurance and diminished value. These two things are not interchangeable, however, and they work very differently.
What is Gap Insurance?
Gap insurance is a supplemental policy that can be purchased for leased and financed vehicles. New vehicles depreciate rapidly, and if a new vehicle is totaled in an auto accident, it may be worth less than the outstanding value on the car loan. This occurs because the total loss settlement will be equal to the actual cash value of the vehicle, which may be substantially less than what a car owner actually owes on the vehicle.
Whenever a financed vehicle is involved in a collision, the settlement is paid toward the repair of the vehicle; if the car cannot be repaired, the total loss settlement is sent to the lien holder that’s financing the car. The vehicle’s owner will only receive settlement if it exceeds the outstanding balance on the loan.
Without gap insurance, an individual may be required to continue making car payments on a vehicle they no longer own. This will leave them with debt and without a vehicle. In order to combat this concern, many people who buy new automobiles decide to purchase gap coverage.
Gap insurance is usually offered by dealerships or financing companies, and the premiums are paid alongside the monthly car payments. If a vehicle is totaled, the gap insurance bridges the gap between the vehicle’s worth and the balance on the car loan.
Filing a Gap Insurance Claim
It’s important to understand that most gap insurance is covered by a different provider than the vehicle’s main auto insurance. This means that you will need to file a separate claim against your gap policy in order to receive benefits. If you don’t know who carries your gap insurance, check with the lien holder; they should be able to locate the insurer for you and point you in the right direction for filing the claim.
What is Diminished Value?
After a car is involved in an accident, its resale value diminishes. Even if the car is repaired flawlessly, future buyers will be able to see on a VIN report that the vehicle was involved in a collision, and buyers are wary of purchasing a car with an accident history. In some cases, auto repairs may cause a car’s resale value to drop by 30% or more.
In order to make up for this lost value, insurance companies offer a diminished value settlement. This occurs after the claim has been settled and the vehicle is repaired. The insured must have the vehicle appraised and determine what its worth was both before and after the collision; the insurance company will then negotiate a settlement based on that figure.
The diminished value claim will not change the car’s resale value. Instead, it is offered as a one time payment directly to the insured as compensation for the lost value. This money can be used in any way that the insured sees fit, but no further claims for diminished value can be submitted for that vehicle.
Filing a Diminished Value Claim
In order to file a claim for diminished value, the vehicle must have been involved in an accident that was not your fault. You cannot recover diminished value on an accident that you cause. Because these claims are not-at-fault collisions, the settlement usually comes directly from the at-fault party’s insurance, even if your repairs were handled by your own insurance company.
Whenever you call the insurance company that will be handling the diminished value, reference your accident claim and explain what you need. You will receive paperwork in the mail that will begin the diminished value process. Once the paperwork has been submitted, an adjuster will inspect your vehicle and offer settlement based on its appraised value. This figure is negotiable, but you must have evidence to back up your request for a higher payment.
Both gap insurance and diminished value payments are ways to recover the loss of value that a vehicle may receive as a result of an auto accident. By understanding in advance how these work, you can ensure that you will truly be paid what your vehicle is worth if it’s ever involved in an accident. If you have any questions about either of these processes, you can discuss them with your insurance agent; he or she will happily go over them in detail to answer any specific questions you may have.Is diminished value the same as Gap Insurance?,