Expert: Richard Hixenbaugh - 10/12/2009

Question
I hit into the back of other car. That car was total loss. The other's car insurance company sent me a letter of demand for 23k for the martket value less the salvage value. However, that car is on a finance. And there is another insurance company send me a letter of demand for 12 k for the balance of the loan.As I undersand, this is called GAP insurance. Am I liable for the balance of the car loan ?

Answer
Hi William,

I am based in the U.S so I am not specifically aware of Aussie law. However, if you were in the US, you would only be responsible for the actual cash value of the car on the day of the accident. After you check with an attorney or your equivilent of a state insurance regulator, and verify that that is the case, you should request from the primary insurance company a copy of what they used to determine the value of the car. Then you would write a letter to the GAP insurance company telling them that under the law you are only responsible for the value of the car and not the balance of the finance contract since that is a seperate contract between them and the person they insured. You should also include the value information that you obtained from the first company.

Again, please keep in mind that this is all subject to your verification that under your laws you are not responsible for the GAP payment.

I hope this helps
Richard Hixenbaugh