No, gap insurance is not required in Michigan or any other state. Even though gap insurance is never required by state law, auto lenders and lessors often make borrowers get this type of coverage to protect their investment in financed vehicles.
Gap insurance is an optional type of coverage that pays the “gap” between your car’s actual cash value (ACV) and the balance remaining on your car loan or lease if the vehicle is stolen or totaled. It is particularly useful for drivers with financed vehicles who made a small down payment or have a car that depreciates quickly.
Gap insurance in Michigan costs an average of $2 to $30 per month, depending on whether you buy it from a dealership, a car manufacturer or your insurance provider. Gap insurance is only needed for one to three years, or until your vehicle is worth more than you still owe on your loan or lease.… read full answer
Gap insurance covers the gap between a totaled vehicle’s actual cash value and the amount still owed on a loan or lease. However, it is important to note that the cost of gap insurance doesn’t vary much by state. Rather, the cost of gap insurance differs based on the provider it is purchased from and the vehicle being covered.
Cost of Gap Insurance by Provider
$200 to $700 total
Dealership or Lender
$200 to $700 total
Add-on to Existing Car Insurance Policy
$20 to $40 per year
Although buying gap insurance directly from your insurance company is usually the cheapest option, not every insurer offers gap insurance in Michigan.
Insurance Companies That Offer Gap Insurance in Michigan
Gap insurance can be a useful thing to have for Michigan drivers who made a small loan down payment, have a lease, or drive a car that depreciates in value quickly, like luxury and sport vehicles. While gap insurance is never required by Michigan insurance laws, lenders and lessors often require it for financed vehicles.
If you lease or finance your car, you may be required to carry coverage types that are not mandatory under Michigan law. Lenders usually require comprehensive and collision insurance. Collision insurance covers repairs to your car when you hit another car or object. If the damage to your vehicle was caused by something other than a collision—like a natural disaster, vandalism, falling objects, or animals—it is most likely covered by comprehensive insurance. Lenders may also require gap insurance, which covers the difference between what you owe on your loan or lease and what the vehicle was worth if it gets stolen or totaled.
A car is considered a total loss in Michigan when the cost of repairs plus the salvage value is at least 75% of the vehicle’s actual cash value. Actual cash value refers to how much the car was worth immediately before the damage, while the salvage value is the car’s worth in its damaged state.… read full answer
When a car is totaled according to the Michigan totaled car law, the policyholder will receive the car’s actual cash value from the insurance company if the loss was covered. Insurance companies in Michigan are not required to pay for applicable taxes and title costs if the policyholder purchases a replacement vehicle. However, it's worth asking your insurer anyway, since some companies will reimburse you or include these expenses in the total loss payout even though it's not mandatory.
Michigan Total Loss Threshold
The Michigan total loss law is also called a total loss threshold. Threshold systems account for the fact that damage is often more extensive than it appears. For instance, the threshold of 75% assumes that a car with that much damage is likely to have even more problems that won’t be visible until a mechanic starts repairing the car.
Michigan Total Loss Law Example
Pre-crash value: $15,000
Cost of repairs: $3,000
Salvage value: $8,000
Sum of salvage value plus repair cost: $11,000 (less than $11,250, which is 75% of the pre-crash value)
Result: car is not declared a total loss
In this example, the driver’s car is not totaled according to Michigan law because the sum of its repair cost plus its salvage value is less than 75% of its pre-crash value, or actual cash value (ACV).
It’s also worth noting that the vehicle used in this example probably cost more than $15,000 when it was originally purchased. The ACV is meant to reflect the car’s worth in its depreciated state, not the cost of replacing the vehicle. If you want a higher payout in the event of a total loss, you should look into optional coverage add-ons like new car replacement or gap insurance.
For more information on what it means for you if your car is totaled, check out WalletHub’s totaled car guide.
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