Gap Auto Insurance Coverage - What Does Gap Insurance Cover?
GAP auto insurance coverage is one the most necessary, yet least understood insurance products available to vehicle owners.
It's purpose is simple: If your car is totaled, gap auto insurance will cover the balance due between what your insurance company says your car is worth (actual cash value) and what you still owe on your loan or lease.
Typically, losses due to the following events are covered: Fire, Theft, Vandalism, Accident, Flood, Tornado, and Hurricane.
Most gap auto insurance policies will also cover your insurance deductible.
Since most new cars depreciate by as much as 20% the first year of ownership and an additional 15% the following year (Edmunds.com), it's likely that during this period the balance of your car loan will exceed the depreciated value of your vehicle.
This financial shortfall, plus the amount of your insurance deductible, is the “Gap” you could be left owing in the event of a total loss and could easily add up thousands of dollars.
If a loss occurs, gap auto insurance will pay the difference for you.
Here's an example of how a Gap occurs when a vehicle is totalled.
You should consider adding GAP to your auto insurance policy if: 1. You purchase a new or used car with little or no money down. The more you borrow, the longer it takes before the loan balance and the actual cash value of your vehicle are roughly equal. This usually takes 3 - 4 years depending on the length of the loan and the interest rate.
2. You choose a 5 year or longer extended term loan. An extended term loan dramatically increases the loan payoff amount during the first few years of the loan. This leaves you especially vulnerable to a situation where you could end up owing far more than your car is worth if it is totalled.
3. A low credit score forces you into a high interest loan. Buyers with a credit score below 550 are currently being charge 13% for new car loans and 18% for used car loans. If this is the case you definitely need Gap protection; but don't pay a new or used car dealer $700 for a non-refundable gap policy. Not when you can purchase the same coverage for around $30 a year from nationally recognized insurance companies listed on this page of the site.
Gap insurance coverage is also available for motorcycles, RV's, campers, and trailers.
What Gap Insurance Does NOT Cover The following gap insurance exclusions are fairly standard from policy to policy. Please check with your insurer to for exact coverage and exclusions.
Cars that are not covered by both comprehensive and collision insurance.
The outstanding balance from a previous car loan or lease rolled over into the new car loan.
After market equipment that was not factory installed such as GPS or sound systems.
Financial penalties and/or security deposits on leased vehicles.
Unpaid or overdue lease or loan payments.
The cost for dealer add on products such as extended warranties.
GAP auto insurance coverage is a powerful and inexpensive tool for leveling the financial playing field between consumers and lending institutions. Spending a few minutes of your time now getting a quick gap auto insurance quote online could save you thousands down the road.