To most drivers, the notion of full coverage car insurance indicates that if anything should happen to their car or truck, it would at least be paid off. Logically it seems as though that would be the case. After all, a full coverage policy includes comprehensive and collision coverage, meaning that we have coverage in any insurable circumstance despite the difference between the price quote and the policy itself.
But it is not always true that a vehicle will get completely paid off if it is totalled. And there is a very good reason for this. It has to do with the nature of comprehensive and collision insurance, and the way their maximum limits are set up. Both of them work this same way, so whether we lose a car from a collision or an act of God does not matter in terms of the question of payoff.
Insurance Coverage and Car Value
For both comprehensive and collision insurance types, the maximum limit of coverage is based on the market value of the vehicle. In other word, if you totaled your truck on June 10, your payout from the collision policy would be based upon the insurance company's assessment of the truck's fair market value on that same day. Now, there is room for dispute and from time to time consumers disagree with the assessments made by the insurers. But that is a whole different story and one that deserves its own writing space.
Let us assume that as the owner of the car we agree with the assessment presented by the insurance company. The only trouble is, that assessment is $5,000 less than what we owe. How can this be possible? There are a number of ways. First, may people opt for zero down loans on cars, and then finance them for five or even six years while interest piles up. The principal on these loan amortizations does not go down all that much in the early going because we are just working on paying down the interest. So, even a truck that's a year or two old could still be upside down.
Negative Trade Equity
And we can add to this another common practice at car dealerships, where customers trade in the last car or truck they had that wasn't paid off yet and that wasn't worth what they still owed. In effect, this truck payment was really paying interest on a huge truck with no money down and also still trying to pay back what was owed on the old truck that was traded in, all with interest.
Auto Insurance Gap Coverage
These scenarios occur way more often than people realize. To avoid this problem when buying a car or truck in this manner with no money down and/or a negative equity trade, add gap coverage to your full coverage auto insurance policy. Gap coverage basically pays off the difference between what you owe and what your truck is worth if it gets totalled while there is still a loan on it.
Auto insurance quotes on gap coverage policy pricing can be found using the free form at the top of this page. Compare the prices you find from different companies and get a great full coverage policy for your new car or truck with valuable gap coverage to protect you. Save money on car insurance and find better values when you shop online. This site is dedicated to making it easier for drivers to find cheap car insurance and to learn more about how to get cheap policies for their vehicles. Learn more and save more money.
