Top Reasons To Buy Gap Insurance

Unlike collision insurance and comprehensive coverage―which only covers what the vehicle is worth, in the event of theft or a total loss accident―gap insurance covers the gap between what the vehicle is worth and what you still owe on the vehicle loan.

For example, if your vehicle is only worth $8,000 at the time it is stolen, but you still owe $9,500 on the auto loan, gap coverage will cover the remaining $1,500.

For this reason, if you lease a car, or if your vehicle is still under lien, you might want to consider purchasing gap insurance.

 

Auto Liens

An auto lien is essentially the contract you sign when you agree to finance a vehicle. An auto lien document verifies the lender’s hold on the financed vehicle. When you finance a vehicle, you can go about it in several ways, to include the following:

• Put little to no money down, with or without a vehicle trade in.

• Put some money down, with or without a vehicle trade in.

• Put a lot of money down, with or without a vehicle trade in.

If you put little to no money down, or if your vehicle trade in is not worth much, purchasing gap insurance is typically advisable. On the other hand, if you put enough money down that there is likely not to be a gap in what you owe and what the vehicle is worth, you might not require gap coverage.

 

Gap Eligibility

Gap insurance applies to used cars, new cars, and leased vehicles, with the following exceptions:

• Balances carried over from a prior loan or lease.

• Overdue leases.

• Overdue loan payments.

• Prior damage expenses.

• Extended warranties.

• Equipment installed after the vehicle has left the factory floor.

In other words, you might still be liable for certain out of pocket expenses, even if you have gap coverage. That said, purchasing gap insurance will still reduce the amount you have to pay out of pocket, in the event of a total loss.

 

Where to Get Gap Insurance

Gap insurance is often offered as part of a lease or loan agreement, but is it typically cheaper to purchase gap coverage from your car insurance company. The actual cost of gap insurance depends on several factors, such as the estimated worth of your vehicle, and the details of the auto lien.

You can compare gap insurance rates online, or by contacting the Insurance Department in your state.