Navigating your loan contract and your insurance policy can be confusing, and trying to figure out the difference between your loan amount and your insured policy amount can be complicated. At 1st American Insurance Agency, we know that knowing the difference between the two is critical in obtaining the best protection for your automobile. Here’s what you need to know about that difference.
Loan Versus Insured Amount
The amount of money you borrow and promise to repay the lender for your car or Longmont, CO home is called the "loan amount". However, sometimes this includes items such as loan fees, or closing costs. Because of this, the amount of your loan may be different from the amount of your insurance policy by a significant margin. Additionally, the value of your vehicle or property may change or depreciate.
When comparing your loan amount with your insured amount, the difference in numbers can be explained through considering the money paid versus the money you’ll receive if you file a claim. The same factors that apply to homeowners insurance come into play when it comes to auto insurance. For example, if you owe your lender $20,000, and you have an automobile policy that covers the cash value of $15,000 in the event of a claim, there is a difference of $5,000 between the amount of your loan and the insured amount. If you collect the full $15,000 cash value, you will still be required to pay the full $20,000 loan amount.
For full protection of the loan amount, a gap insurance policy would cover the difference between the amount of money still owed and the insured amount of your policy. Some lenders require a borrower to obtain insurance covering the full loan amount to protect you and the lender from financial loss resulting from a claim. Contact 1st American Insurance Agency serving Longmont, CO today to discuss the best insurance options for your specific circumstance.