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Gap Insurance vs. Collision Insurance

January 6, 2023

By Thomas McCutcheon

We are seeing a decline in coverage that people buy for their own protection. I suspect advertisements which invite people to buy coverage that fits them really means buying the least coverage they can and hoping for the best. Hope is not a strategy.  

That being said, we see more and more minimum limits policies at a time when we see higher and higher medical bills for injury related treatment. There are a lot of reasons for that, including medical providers dealing with auto insurance companies rather than health insurance companies to seek higher reimbursement.  

We see people who often have collision coverage that pays ACV (actual cash value). ACV has nothing to do with what you owe for your car. Collision coverage covers your car if it’s damaged in a collision with another automobile whether it’s your fault, their fault, or nobody can decide whose fault. Collision coverage pays actual cash value. If you did not make a good deal for your car or your financing is expensive, this coverage will not pay you what you owe.   

Let’s face facts, a car is not a good investment. I know. There are coverages offered called “gap coverage” or “gap insurance” and this type of coverage will cover the “gap” between what someone owes on their car and the car’s actual cash value in the event of an accident. The idea here is that with longer financing at higher rates, cars depreciate (lose value) faster than the amount owed is decreased. When people ask us about gap coverage, think about the age of the car, the length of the financing and the actual cash value.  

Buckle up, drive safely, and as always, your referrals are appreciated!


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