The at-fault party’s insurance company is legally obligated to pay to repair your vehicle after a car accident. But, sometimes the damage is so severe that the insurance company classifies the car as a total loss. If you are still making payments on your vehicle, it’s important to understand how this will impact you financially and how gap insurance can help.
What is a Total Loss?
Colorado law states an insurance company can classify a car as a total loss if the cost of repairs is equal to or greater than the car’s value. For example, if a car is valued at $5,000, the car is totaled if the cost of repairs is estimated at $5,000 or more.
The Financial Impact of a Total Loss
If your car is totaled, the insurance company must pay to replace the vehicle. But, the insurance company will only pay you the actual cash value of the car at the time of the accident. To determine how much your car was worth before the accident, the insurance company will consider the vehicle’s age, condition, make, model, mileage, and resale value. The insurance company will calculate the actual cash value based on these factors and write you a check for this amount.
However, it’s possible that the actual cash value of the car will be lower than the amount you still owe on the vehicle. This can put car accident victims in a bad financial situation, but fortunately, gap insurance can help.
How Gap Insurance Can Help
The purpose of gap insurance is to bridge the gap between the car’s actual cash value and the amount still owed on the vehicle. For example, let’s say you total your car in an accident. You still owe $7,000 on the loan, but the insurance company only values the car at $5,000. Gap insurance will cover the $2,000 gap between the amount of the loan and the amount paid by the insurance company. If you do not have this coverage, it will be your responsibility to pay the $2,000 difference.
If you are making payments on a vehicle, it’s strongly recommended you obtain gap insurance so you are covered in the event your car is totaled.
If you have been injured or suffered property damage in a car accident, contact Reisch Law Firm at once. Let our personal injury attorneys handle the challenging process of recovering compensation from the at-fault party’s insurance company. Schedule a free consultation today by calling 303-291-0555 or filling out this online form.