Getting into a car accident is unexpected and frightening; it’s something you least expect when getting from point A to point B. This stress can be exacerbated when your vehicle is damaged and financed.
When you still owe money on your car and it gets mangled in a collision, you may be concerned about how you will pay off the damaged vehicle and purchase a new one. Here’s what you should know.
Calculating the Value of a Damaged Car
Auto insurance companies only allow claims to be paid out for the depreciated value of a motor vehicle, or its Actual Cash Value (ACV). This refers to its value after being driven, depending on its condition, how many miles are on the vehicle, and additional factors.
Understanding the depreciated value of your car is important; the Insurance Information Institute indicates that vehicles begin to depreciate in value the moment they are driven off the lot and can lose as much as 20% in a single year.
Prior to purchasing insurance, you should know what percentage of a car’s market value the company uses to determine the vehicle’s salvage value. This is the same as the percentage of the car’s ACV you will receive from the insurance company if your car is considered totaled. Not all insurance companies use the same percentage, however, most hover around 75%.
Is the Vehicle a Total Loss?
In some car accidents, the amount of damage to a vehicle falls within the covered insurance limits. The insurer of the at-fault party makes a payment for the estimated cost of the damages and the recipient then uses those funds to pay for repairs. After this, the case is closed, but the insurance rates of the at-fault party are likely to be higher for the foreseeable future.
In cases where a car is damaged beyond its depreciated value, it may be declared a total loss. If you still owe money on a vehicle that has been declared a total loss and you aren’t able to drive it, this can leave you in a very difficult situation.
Without adequate motor vehicle insurance, you could be left responsible for paying the difference between what insurance does cover and the remaining amount of your car loan. If you’re not able to operate your vehicle and you’re still on the hook for the loan, you’re essentially making payments on a car that doesn’t exist. If you purchase a new vehicle, you’ll need to make payments on both until your first loan has been paid off.
For most people, this is challenging, if not impossible to do.
How Gap Insurance Comes into Play
Gap insurance is a type of motor vehicle insurance that pays for the difference between the depreciated value of your vehicle (what your insurance company will pay towards damages) and the amount of money you owe on your auto loan.
Combined, insurance payments from traditional coverage and gap coverage should be enough to pay off the loan for your totaled vehicle. Then, you should be able to take out another loan for a new vehicle, starting over fresh.
It’s important to note that gap insurance does not cover anything beyond the cost of the damaged car; it does not pay anything towards car accident injuries or other damages that are in excess of insurance policy limits.
Does Massachusetts Require Gap Insurance?
The Commonwealth does not require residents to purchase gap insurance, although basic insurance must be carried by every driver. If your vehicle is financed, your auto loan servicer may make gap insurance mandatory.
Does New Hampshire Require Gap Insurance?
New Hampshire actually doesn’t require residents to purchase automobile insurance at all, which is quite unusual compared to most other states.
If you choose not to purchase car insurance, you’ll need to be able to show that you meet the New Hampshire Motor Vehicle Financial Responsibility Requirements. This means you’ll need to prove you have enough funds available to cover an accident if you’re at fault. Since severe motor vehicle accidents can cost hundreds of thousands of dollars, this is generally not recommended.
Like Massachusetts, private auto loan servicers in NH may require you to purchase automobile insurance that includes gap coverage.
When to Contact a Veteran NH & MA Car Accident Lawyer
If you or someone you love have been involved in a car accident, it’s critical that you speak with an experienced attorney as soon as you can. Negotiating with insurance companies can be challenging at best and infuriating at worst.
Your lawyer can act as a liaison between you and the insurance adjusters working on your case and will zealously pursue the maximum possible settlement available. In cases where a fair settlement cannot be reached, your attorney can help you pursue litigation.
At Mazow | McCullough, PC, we’ve been serving injured individuals and their families in counties across Massachusetts and New Hampshire since 2003. Our team is dedicated to providing you with the experienced, comprehensive legal representation you need after a serious car accident or other injury.
Contact us today to learn more or to schedule your initial free consultation to discuss your case by calling (978) 744-8000 or toll free at (855) 693-9084.
