Do You Need GAP Insurance?

Do You Need GAP Insurance?

NJ Appellate Division Holds Totaled Car Owner Only Entitled to Recover its Value

As car owners know, the value of a new car depreciates by about 11% the minute you buy it, and typically depreciates up to 20% in the first year of driving it. That creates a potential issue – what do you do if your car is totaled and your car loan is still higher than the value of your car? The financing company will want you to pay back the remainder of the loan, and you’ve only received an amount equal to the car’s value from the insurance company. Of course, the financing company expects you to make up the difference.

That’s where “Guaranteed Auto Protection Insurance” or “GAP Insurance” might come in. It is designed to cover the difference between the amount still owed on the car loan and the value of the car.

What if your car was totaled due to an accident that wasn’t your fault? Can’t you sue the person at fault for the remaining car loan balance and their insurance company can pay it?

The New Jersey Appellate Division says “no” in a recent Appellate Division decision, Adena v. Cupoli, 2017 WL 1450658 (App. Div. April 25, 2017).  In Adena, the car owner sued the person at fault for the accident in the Special Civil division seeking, among other things, the remaining balance on the car loan. The Court cited a 1987 Appellate Division decision to reiterate the longstanding concept that, “[t]he measure of damages for the destruction of an automobile is the market value at the time of the loss.” Adena’s holding reinforces the idea that recovery of the vehicle’s value is the exclusive remedy available to the owner of a totaled car.

So do you need GAP Insurance? Only you can decide if the risk is worth it, or if you’d rather forego the insurance, as it’s quite possible you will never need it. It is important to do your research and compare different insurance quotes before making any decisions.