Your car insurance policy is very important. It protects you and provides a safeguard should you cause an accident. If you own a new car upon which you are making payment, your insurance will likely include comprehensive and collision coverage, which will also help you repair or pay for your vehicle if it sustains damage in an accident in Texas.
However, even with all the coverage you can have, there is still a risk. If you still owe money on your car but the amount you owe is more than what your car is worth, you could face some issues if your insurance company deems your car a total loss after an accident. In this case, your insurance will only pay what your vehicle is worth. You end up having to pay the balance of the loan.
Gap insurance
The Insurance Information Institute explains that if you are in this situation, your best form of protection is gap insurance, which will pay the difference between what you owe on your car and its actual value. Having this coverage can save you a lot of headaches and a lot of money.
Consider this situation: your car is completely damaged in an accident, so you cannot drive it. You still have to pay off the loan that your insurance did not pay, so in the meantime, you cannot afford to get a new car. That could be a devastating situation, especially if you need a vehicle to get to and from work.
Keep in mind that once you drive off the car lot with your vehicle, it begins losing value. Unlike homes, which gain value over time, cars lose it and fast. So, the chances are very good that the actual value of your vehicle is not equal to the remaining balance of your loan. Gap insurance can help save the day if you are in this situation.
