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GAP INSURANCE
You just got into an accident and totaled your year-old vehicle. You are not worried though, because you have full collision and comprehensive auto insurance coverage and are expecting full replacement of your car, at no cost. This assumption is very wrong! Unless you have gap insurance, you are likely going to lose a couple of thousand dollars.

What is 'gap' insurance?
Gap insurance covers the 'gap' between the true value of your new car when you get into accident and the amount you owe for your new car loan.

Why get 'gap' insurance?
'Gap' insurance protects your new car investment. There are so many different finance deals out there, 0% down and/or no payments due for the first six months. These types of auto finance offers mean a tremendous difference in the amount you owe and the real value of your car.

Cars, especially new cars, depreciate every year. So, if your car is stolen or totaled in accident, you are going wind up losing a big chunk of money if you don't have gap insurance.

When you owe more for your car loan than the vehicle is worth, you are 'upside-down' on your car loan.

An example of how not having 'gap' insurance can effect you
Suppose you purchased a vehicle for $35,000 and took out an auto loan for 100% of the purchase price. After several months, the automobile may be worth $30,000 as a result of depreciation. Your monthly auto finance payments have only lowered your loan obligation by $1,000. If the car was totaled via an accident when stolen, your insurance company would pay you $30,000, the mentioned value of your car. You would still have to pay the  what you owe for your auto loan for the car, which is $5,000.

Leasing and gap insurance
Although gap insurance is important for people looking to buy new cars, it is equally common when you lease a vehicle. People that lease cars often put no money down, resulting in being upside-down often, and quickly. Many leases will have gap insurance factored into the price. Other leases will require you to shop for it on your own.

How do I get gap insurance?
Gap insurance is offered by most auto insurance companies. However, gap insurance is only available for new car loans or new car leases. Some auto insurance companies will include gap coverage in their regular comprehensive coverage.

Are they any instances when gap insurance does cover damages?
Sometimes gap insurance policies will not compensate 100% of a car's value if the car is stolen or if a car is damaged from a natural disaster. When in the market to buy gap insurance, make sure that you ask any potential carrier when circumstances are not covered by gap insurance.

Learn how you can save money on auto insurance.


 

 

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