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How does gap insurance work after receiving a car insurance payout?
I owe $15,000 on my loan. The insurance payout with my new car replacement coverage is $19,000. My insurance said the settlement is being sent to my lienholder to deduct the balance I owe, and the rest will come to me. Shouldn't my gap insurance cover my loan so I get the full settlement value?
Emily Maracle · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“
Gap insurance
is designed to protect a borrower if their vehicle is totaled and they owe more on their loan then the actual cash value of the vehicle. Since your settlement amount is more than what you owe on your loan, your gap coverage wouldn’t apply.New car replacement coverage
ensures that if your new vehicle is marked a total loss in the first one or two years of ownership, you’ll receive a payout that will allow you to get a comparable vehicle. This is why you received a larger settlement amount.Insurance is designed to restore you to your pre-accident financial state. If you received the full settlement value and your loan was paid off by your gap insurance, you would be benefiting from your insurance transaction, which isn’t the purpose of insurance.
“
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