Gap Insurance

Gap insurance provides coverage in a variety of circumstances when a car is severely damaged or stolen. It pays regardless who was at fault in an incident. For example, if you were to be involved in a total loss collision a few months after purchasing a vehicle and you had purchased collision and gap coverage, your collision coverage would pay for the estimated market value of the vehicle. Gap coverage would then pay the additional amount between what was paid to the insured under collision coverage for the total loss vehicle and the amount that is still owed to the lien holder for the vehicle.

Another example would be if shortly after purchasing a new car you were involved in an accident where a deer jumped out in front of you car resulting in a total loss, gap insurance would also help pay for your loss. You would need comprehensive coverage to pay for the appraised value of your car, and then gap insurance would pay for the remaining amount still owed to your lien holder.

Gap insurance can save you a lot of money. The difference between the appraised value and the amount remaining on a loan can be a considerable sum. In the absence of gap coverage, you could be personally responsible for thousands of dollars still owed on your vehicle to your lien holder. It is well known that a new vehicle can lose several thousands dollars in value as soon as it driven off the dealer lot.

Some vehicle owners do not realize how important gap insurance coverage it is until it is too late. They may think their brand new car has a lot of value with nothing to worry about. Purchasing a new vehicle without gap insurance can be very irresponsible.

Gap coverage will also take effect when a vehicle loss is caused by accident, theft, flood, fire, vandalism, tornado, or hurricanes. Auto loans are typically front-loaded in the sense that interest payments amounts are highest in the first few years of vehicle ownership.

After a few years of owning a vehicle, as the remaining loan balance owed on the loan falls below the market value for your vehicle, you can drop your gap insurance as it no longer makes financial sense to have the coverage.

Gap insurance rates can vary amongst insurance companies. It is important to shop around to get the best price. Be sure to read your auto policy carefully to determine any exclusions or limitations on gap coverage. Since it is a very distinct form of coverage, a vehicle owner can purchase gap from a different carrier than their auto liability insurer.