Gap insurance is an optional car insurance coverage that helps pay off your auto loan if your car is totaled or stolen and you owe more than the cars depreciated value. It is also known as "loan/lease gap coverage". Gap insurance is meant to be used in conjunction with collision coverage or comprehensive coverage. When you drive a brand-new vehicle off the lot, its value immediately decreases, and most vehicles value depreciates about 20 percent in the first year of ownership. If you have a covered claim, your collision coverage or comprehensive coverage would help pay for your totaled or stolen vehicle up to its depreciated value. However, if you owe more on your car loan than the car is worth, gap insurance can help pay the difference between the depreciated value of your car and what you still owe on the car.
Gap insurance is only available if youre the original loan- or leaseholder on a new vehicle. It can be purchased from car dealerships or many insurers offer gap insurance as part of a car insurance policy. According to the III, buying gap coverage from an insurance company often costs less than buying it from a car dealership. Some insurers require your vehicle to be brand new in order for you to purchase gap insurance.
Gap insurance typically covers the difference between the remaining value of your vehicle loan or lease and your vehicle’s actual cash value at the time of the incident. It will cover that difference in the case of a total loss and theft, but it will not cover deductible costs. In addition, it cannot be used to cover costs associated with vehicle repairs and bodily injuries as a result of an incident.
Its a good idea to consider buying gap insurance for your new car or truck purchase if you owe more on your car loan than the car is worth. Once the amount that you owe on your car is less than the actual cash value of the car, you would no longer need gap insurance. Your lender may require gap insurance.
