Santa Clarita Valley lawyer, Mason Rashtian, discusses how GAP insurance can protect you when financing a car

The State of California requires that motorists carry liability insurance. However, there are other types of insurance which, although not required by motorists to carry, can help protect one in case of an accident. Some of these types of insurance are more known than others, such as uninsured motorist coverage. However, some of less known, such as GAP Insurance.
Property damage is inevitable in car accidents. If the damage is minor and there is insurance to pay for the repairs, then property damage may not become a big issue. But, what happens if the car is totaled and the value of the car is less that what is owed on the car?

California law generally holds that a party in an accident is entitled to recover the actual cash value of the vehicle from the responsible party. However, anyone who has financed a car will know that the actual cash value of the car, especially early on in the terms a loan or lease, is less than the payoff amount - i.e. the amount owed on the car.

For example, you choose (and finance or lease) a car that costs $35,000. As soon as you drive that car off the lot, it starts losing value and the actual cash value declines. You have the car for six months before it is totaled in an accident by a careless drunk driver who runs a red light and crashes into you. The actual cash value may be $29,000 (hypothetically speaking), but you still owe $35,000 (hypothetically speaking) on the car. The insurance company for the drunk driver is only obligated to pay you $29,000, the cash value of your car. However, you owe $35,000 on the car, which leaves you $6,000 short. How can you protect yourself against this?

You can protect yourself by carrying GAP insurance, which essentially covers the gap between the actual cash value of your vehicle and the amount owed on the vehicle. So, when it comes to protecting yourself during the terms of your car’s life (if you have a loan or a lease), GAP insurance can be invaluable. GAP insurance can generally be obtained through your auto insurer or the dealership from where you financed or leased the car.