Filling the Gap: Repair or Replacement Coverage vs. GAP Insurance

There many things to consider when purchasing a new automobile. I want to look at two of those items – the Repair or Replacement Coverage Endorsement and GAP Insurance.

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Repair or Replacement Coverage for damage to your auto is an endorsement many companies allow you to add to your Personal Auto Policy for losses caused by something other than fire, theft, larceny, malicious mischief or vandalism. If there is a covered loss, the endorsement will replace the car with the same make, size, body type and equipment when possible, or repair the vehicle with parts of like kind and quality. The maximum liability of the company is the lesser of the two. NC Farm Bureau Guidelines state it must be a brand-new vehicle owned by the named insured as the first titled owner, listed on the declarations page, with less than 1,000 miles on the odometer and a maximum coverage period of five years.

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GAP Insurance is a supplemental insurance policy typically offered through the company financing the vehicle. It pays the difference between the cost of a claim and the loan payoff in the event a vehicle is a total loss as a result of a covered claim. Auto insurance policies pay on an actual cash value basis unless RRC endorsement NC 03110185 is added, which means depreciation would be calculated when a covered loss occurs. This could result in an insured owing more on the vehicle than it is actually worth, or what’s commonly referred to as being upside down on a loan. Even if RRC is on the policy and the vehicle is a total loss, the insurance company only pays up to the replacement cost of the vehicle. Therefore, GAP Insurance and the Repair or Replacement Cost Endorsement might be needed.

For example, let’s say an insured buys a current-year vehicle and adds it to their policy with the RRC Endorsement. The loan balance is $40,000. Soon after, the vehicle is totaled in a covered loss. The company finds a vehicle of the same year, model, body type and equipment, but at a price of $37,000. The difference of $3,000 would be the responsibility of the insured along with the loan of $37,000 on the new car. Therefore, you can conclude that you may have a need for the RRC Endorsement and GAP Insurance.

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Repair or Replacement Coverage for Damage to Your Auto Endorsement NC 03110185 might not be offered by all insurance companies, but it is available with NC Farm Bureau. This article gives an overview of the endorsement, so please consult with your local Farm Bureau agent for additional details or to answer any questions. GAP Insurance questions can be directed to the finance department of the dealership or your lending institution.

– Allan Williams