Gap Insurance Basics
There are few things as horrifying as getting into an automobile accident. If your car gets wrecked, especially a newer or more expensive car, another type of horror can set in after the accident. You may still owe a substantial amount of money for the car and begin to worry about how you are going to pay the difference. Gap insurance is the kind of coverage you would want to have if you were in this scenario. If your new car is totaled, standard coverage may only pay the book value of the car. Gap coverage can pay for the remaining balance of your payments.
How Gap Insurance Works
Here's an example that may be helpful: Let's say you purchased a new car for $20,000 and paid a $500 down payment. Your monthly payments are $350 and you pay your monthly payment for 6 months, at which point the car is severely damaged or destroyed. This is when gap coverage kicks in. At this point you have paid $2600 dollars on the car, but still owe $17,400 on it. Gap insurance pays the difference between where your collision insurance ends (typically $16,550) and the remaining balance. So, gap coverage will pick up the bill for the remaining $1,100 that you would have had to pay for on your own without the gap coverage.
Gap Insurance: Buyers
Those people that have already paid for the majority of what a car is worth probably won't need gap insurance. Gap insurance is best suited to people that owe more on an automobile than it is worth. Remember, once you drive it off the lot, a car's value begins to depreciate. Gap insurance can be invaluable in this circumstance. Gap coverage is also good to have in cases where you have a very high interest loan or if you owe the car dealer money after a trade in. So remember, if you owe a lot on your car for any of these reasons, gap insurance should be a major consideration for you.
Gap Insurance: Lessors
Leasing a car is based around the principle of paying less for your car payments than the car is actually worth. Gap insurance can come in handy for drivers who lease. It is so important to have that many dealers make it mandatory for those who are leasing to have gap insurance, before the lease is signed.
Gap Coverage is Voluntary
As we have stated, gap insurance isn't right for every situation. Most states require auto insurance, but it is never gap insurance that is required. Don't brush over the fact that gap insurance may indeed be for you. Assess your situation as it pertains to your car and compare it to the scenarios and information from this article. If it would turn out that you would owe more money than a car is actually worth, you may want to get gap coverage on your automobile insurance policy.