Insurance concepts are challenging for many consumers driving the highways and suburban roads in the Rochester, MN area. Things become even more confusing when consumers try to understand the insurance requirements for those cars bought on time.
Yet, having a full understanding of this insurance coverage issue is critical if you are to secure the right insurance protection for yourself while having an outstanding car loan.
According to the insurance experts at Safechoice Insurance Agency, it is essential to understand the definition of the loan amount before deciding on the amount of coverage you need. Remember, the loan balance can exceed the total monies borrowed, because closing costs and loan fees are often financed.
The outstanding balance of a loan is typically the bare-bone, basic minimum insurance required by the lienholder, although each lender can set their criteria. It is common, and prudent, for car owners to insure their cars for more than the loan amount – because this allows them to protect their investment in the vehicle – the down payment.
Consider this quick example-
- You bought a car and have a loan of $25,000.
- Your car insurance covers your vehicle for cash value only.
In the event of an insurance payout in the above scenario, the claim will pay the cash value, which in this example is $22,000. Who would be responsible for the shortfall of $3,000? ($25,000-$22,000=$3,000)
The short answer is – you, the insured, would responsible for the shortfall if you did have gap insurance. Gap insurance is a type of policy that covers any shortages if the insured amount falls short of the outstanding loan balance.
The insurance professionals at Safechoice Insurance Agency serve the communities in and around Rochester, MN for all their car insurance needs, including gap coverage. Reach out to the insurance experts today!