Author: R. Christopher Jones, Richmond, VA Personal Injury Attorney
Only a few things compare to the feeling of driving a brand-new vehicle home from the dealership. The paint job is immaculate, the audio system sounds amazing and the interior smells, well, new! Despite all of the joys of new car ownership, there is one glaring negative – most vehicles depreciate in value the moment they’re driven off the lot. In fact, it’s been estimated that new cars can lose as much as 20 percent of their value in the first year. 
A “total loss” puts you “upside down”
Such rapid depreciation can be extremely problematic if your shiny, new vehicle gets damaged in an accident soon after you bring it home. Why? Due to the high costs of new automobiles, most buyers are compelled to finance the entire sticker price with a bank loan. If that vehicle is wrecked to the point that it’s labeled a “total loss” – when the cost to repair exceeds the vehicle’s worth – the cash value received from the buyer’s car insurance company may not cover the balance of the car loan. That leaves the buyer without a working vehicle and “upside-down” – a term indicating when one owes more on a vehicle than it’s worth.
Here’s a realistic dilemma – you have $40,000 worth of car payments to make on your only vehicle. Due to no fault of your own, the car is totaled after someone disregarded a red light and crashes into you. The negligent driver’s insurance company offers you $35,000, the actual cash value of your car, stating that’s all they’re committed to pay. You’re forced to accept the settlement, knowing that you need a replacement vehicle while you still owe $5,000 to the bank for a car that you don’t even possess anymore!
The basics of GAP insurance
How do you avoid this frustrating and costly scenario? One option is Guaranteed Auto Protection (GAP) insurance. GAP insurance covers the difference between the actual cash value of the vehicle and the balance still owed on the financing, providing additional coverage to supplement your standard auto insurance policy. Car dealers traditionally sell GAP insurance in the finance office as the sales contract is being prepared, but you can shop around for competitive pricing.
Consider the following when debating on whether to purchase GAP insurance:
The amount of your down payment. If you are putting down less than 20 percent on your car purchase, you may need GAP insurance.
Review your auto insurance policy. If it says the policy will pay off the fully financed amount, then you don't need GAP insurance.
Know the terms of the GAP policy. It may not be honored if you don't have collision and comprehensive insurance coverage.
Whether or not you decide to purchase GAP insurance, be mindful to protect yourself against the prospect of being “upside-down” as the result of someone else’s carelessness.
If you’ve been injured in an accident that wasn’t your fault, call Allen & Allen for a free consultation at 1-866-388-1307.
 Carfax blog, last updated on 4/6/15. https://www.carfax.com/guides/buying-used/what-to-consider/car-depreciation