What Does Gap Insurance Cover?

Of the many features you may purchase as a part of your car and truck auto insurance policy, an optional form of insurance you can purchase is gap insurance.

Gap insurance is especially useful for drivers who have recently purchased a new car at full value, and who wish to protect themselves from having to pay off their vehicle in the unfortunate event it is completely destroyed or stolen.

Gap Insurance Applied

Take this scenario for example: If you buy a new truck for $30,000 on loan, you may put down $1000 as a deposit and arrange for payments of $400 per month. Six months after buying your truck, you get into an accident and it's totaled.

Assuming your collision insurance company decides your half-year-old truck is now worth only $20,000, the insurance company will pay you this value amount - less your deductible for the collision if you are at fault for the accident. Up to this point you have made six payments on time in addition to your deposit payment. These payments come to a total of $3,400. The remaining amount you owe on the truck is $26,600.

In this situation, gap insurance should pay the difference between what you owe on the car and what your collision insurance covers. By not having gap insurance, you would have had to pay that extra amount yourself. Keep in mind you may have to pay for your deductible on the collision also.

Gap Insurance for Lease Vehicles

Gap insurance would be especially useful if you are leasing a vehicle. Despite the fact you will not be buying your car or truck, you are ultimately responsible for making good on paying it off even if it's totaled in an accident or stolen. Because lease payments entail an overall much lower amount of money than you would paying toward the purchase of car, the "gap" between what you would have paid toward a lease contract and the value of a car or truck for purchase is wide. In this case, having gap insurance would be much more helpful if you are leasing. Some automotive lease contracts require gap insurance.

Gap Insurance May Assist Auto Buyers

Gap insurance for you as a buyer of a car or truck would help you if you still owe more than your car is worth now - for example, if you put many miles on the car within a short time after buying it.

Review Your Auto Insurance With Your Agent

Be sure to make an appointment with your agent to review what coverage you have in your current auto insurance policy. Be sure to mention gap insurance with your auto insurance agent and weigh the respective advantages it may offer.

Source:

"Gap insurance", Aaron Gold, About.com

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