If you've recently bought a new car, then you may have been offered gap insurance. Some dealerships offer this as part of the auto financing service. You can also get it through your car insurance company or another insurance provider. Gap insurance can be beneficial for some people. Here is more information about gap car insurance, what it does, and who needs it.
What Is Gap Insurance?
Gap insurance fills in the gap between what you owe on your car and what it is really worth. You would only need to use it if your car was totaled or stolen. Without it, you could end up in a financial hole during these circumstances. You will no longer have use of your car, but you will still owe money on it.
How Is Gap Insurance Different Than Full Coverage?
When you have full coverage, your collision and comprehensive insurance will pay for the depreciated value when the car is totaled or stolen. However, the depreciated value may not be what you owe on the car loan. Full coverage insurance does not fill in that gap between the actual cash value of your car and what you owe.
How Does Gap Insurance Work?
Here is an example of how gap insurance works. Say you borrowed $20,000 to buy a brand new car. You made payments for a year, and now you owe $15,000. Then, you get into an accident, and the car is beyond repair. Your insurance company says your car's depreciated value is $10,000. So, you will have to settle the rest of your loan out of your own pocket unless you have gap insurance.
Who Needs Gap Insurance?
You may need gap insurance if any of the following apply to you:
When Can You Buy Gap Insurance?
Many dealerships and insurance companies offer it when you purchase your car or soon afterward. However, you don't have to buy it then. You have up to three years to get gap insurance. You have to be the original owner, and you must have purchased the car as new.
If you have a car loan, you may benefit from gap insurance. Some lenders may require it, especially if you lease the car. This insurance can come in handy, even if you are not required to have it. If you think you can benefit from gap insurance, talk to a local car insurance agent for more information.
After I moved out of my parent's home, I started learning more and more about insurance policies. I was involved in a bad car accident, and I ended up working with my car insurance company as well as my medical and dental insurance companies. I paid my premiums and enjoyed coverage, but I didn't really understand how the entire insurance claim process worked. I wanted to make this blog to help other people like me to learn more about insurance coverage. Check out this blog for more details on insurance coverage, how to file a claim, and what you should expect throughout the shopping process.