Getting into an accident is scary enough. Then a few days later, your insurance company calls with bad news. Your vehicle is a total loss. It’s not going to be fixed. Now you have a new worry. What happens to the money you still owe on your loan?
This is where gap insurance comes in. At Pemberton Personal Injury Law Firm, we help Wisconsin drivers understand what their insurance actually covers after a serious crash. Gap insurance can be confusing, so let’s break down how it works, step by step.
What Does “Total Loss” Mean?
A vehicle is usually considered a total loss when the cost to repair it is close to or exceeds what the vehicle is worth. Insurance companies do not look at what you paid for the car. They look at what it is worth right now, called the actual cash value.
In Wisconsin, a vehicle may be seen as a total loss if repairs would cost more than 70 percent of its value. Once your insurer makes this call, they will pay you the car’s actual cash value, minus your deductible. This is true even if you still owe more than that on your loan.
What Is Gap Insurance?
Gap insurance covers the difference, or gap, between your car’s actual cash value and what you still owe on your loan or lease. Cars lose value fast, and many drivers owe more on their loans than their cars are worth, especially in the first few years.
Here’s a simple way to picture it: say your car’s actual cash value is $18,000, but you still owe $23,000 on your loan. Without gap insurance, you’d owe that remaining $5,000 out of pocket, even though your vehicle is gone. With gap insurance, that $5,000 gap is usually paid for you.
Gap insurance is optional in most cases. It’s often offered when you buy or lease a new car, and you can usually add it to your policy later, too.
How Does Gap Insurance Work After a Total Loss?
The process is fairly simple once your vehicle is declared a total loss. First, your regular auto insurance pays out the car’s actual cash value. Then, if you have gap insurance, it kicks in to cover what is left on your loan.
Steps in the Process
Here is what usually happens after your vehicle is totaled:
- Your insurer reviews the damage and declares the vehicle a total loss.
- Your insurer sends a check for the actual cash value, minus your deductible.
- Your loan company gets paid first from that check because they hold the title.
- If money is still owed after that, your gap policy pays the rest.
- Any amount left over after the loan is paid goes to you.
Gap insurance does not pay you directly in most cases. It pays your lender. This keeps your loan from following you around after your vehicle is already gone.
What Gap Insurance Does Not Cover
Gap insurance is helpful, but it has limits. It is worth knowing what it will not do for you.
A few common gaps in gap coverage include the following:
- It will not pay if your vehicle is only damaged, not totaled.
- It will not cover missed loan payments from before the accident.
- It will not cover your insurance deductible in most policies.
- It will not pay for medical bills or injuries from the crash.
- It will not help if you do not carry collision or comprehensive coverage.
If the crash also left you injured, gap insurance will not help with that. You may still be able to seek money for medical bills, lost wages, and related injury costs through a separate injury claim.
What if the Insurance Company’s Offer Seems Too Low?
Sometimes an insurance company’s total loss offer feels too low. This can happen even with gap insurance in place because your gap payout depends on the insurer’s initial actual cash value.
You have the right to ask how that value was calculated. You can also share proof of your car’s condition, upgrades, or local sale prices to support a higher number. If the company still denies a fair value or drags out the process, you do not have to accept the first offer.
Should You Get Gap Insurance?
Gap insurance makes the most sense in certain situations. You may want to consider it in the following cases:
- You made a small down payment on your car.
- You have a long loan term, such as six or seven years.
- You lease your vehicle instead of owning it.
- Your vehicle loses value quickly, which is common with many new models.
If your loan balance is already close to or below your car’s value, gap insurance may not save you much money. It is worth checking your numbers before deciding either way. If you were hurt in a crash and need to know how much your claim may be worth, that is a separate question from your car’s total loss value, and we can help you look at both. If your insurer is dragging its feet, our experience with other total loss claims can help you know what to expect.
Contact Pemberton Personal Injury Law Firm After an Accident
A total loss accident brings a lot of stress at once. You are dealing with a lost vehicle, insurance calls, and maybe an injury on top of it all. Our team at Pemberton Personal Injury Law Firm has spent more than 90 years combined helping Wisconsin drivers sort through the confusion that follows a serious crash, and we know how to push back when an insurance offer falls short. We also monitor key deadlines so you do not miss your chance to act.
You do not have to sort through your total loss claim and injury questions on your own. Reach out today for a free case evaluation, and let our team help you understand what you are owed.
