Gap insurance is an optional car coverage not mandated by the state, car dealers, or car lenders. It helps to provide a gap between drivers whose car loan balance is more than the worth of their vehicle when totaled.
Gap Insurance helps you pay off your car loan when your car is either stolen or totaled, and you owe more than the car’s depreciated value.
You purchase this insurance to protect yourself when the amount you receive for compensation does not cover the amount you owe on the agreement. Gap insurance helps you settle the balance payment.
This comes into play when you owe more than your car is worth. You can purchase it as an endorsement on your policy or separately from a dealer.
How Gap Insurance Works
Gap insurance comes into play when your vehicle is totaled, stolen, damaged, or in a situation where your car has depreciated.
Cars depreciate quickly, and in situations where your car depreciates, it will be totaled. If your car is totaled, your car insurance company will compensate you based on the car’s current value after it has depreciated.
For instance, if you bought a car and owe $20,000 on the financing agreement. However, your car becomes valued at $15,000 due to depreciation.
The gap insurance will pay the balance of $5,000; however, if you do not have gap insurance, the outstanding fee will be paid by you.
Some car lenders require drivers to purchase gap insurance coverage as a requirement to protect themselves if car owners decide to walk away when the car depreciates.
Not all gap insurance policies cover negative equity, so ensure you buy a policy that covers negative equity in your car when you take a car loan.
When to Consider Gap Insurance
Certain instances require considering gap insurance; below are some of them:
- You should consider gap insurance when you finance a car and make little or no significant down payments.
- You should consider gap insurance when you trade in an upside-down car where your dealer will add what you owe to the loan balance for you to pay upfront.
- You should consider gap insurance when you put miles on quickly as this can depreciate a car’s value easily.
- You should consider gap insurance when you take out a long-term car loan
FAQs
Can I Purchase Gap Insurance After I Buy a Car?
Yes, you can purchase gap insurance after you buy a car, depending on the model of the vehicle; however, most insurers require your vehicle to be brand new in order to purchase gap insurance.
Gap insurance can be bought from car dealers or insurers as part of your car insurance policy. Ensure to check to find out the qualifications needed to buy gap insurance.
Is Gap Insurance Mandatory?
No, Gap insurance is not mandatory by law but it is required during financing agreements, to be sure you carefully review the terms of your car loan agreement to be sure you need gap insurance.
Is Gap Insurance Expensive?
Gap Insurance cost varies and depends on factors such as your state, driving record, vehicle type, age, and others.
Your insurer may also add gap insurance to your coverage and this is less expensive compared to getting gap insurance from car dealers.
What Does Gap Insurance Not Cover?
Gap insurance does not cover the following:
- Engine failure
- Transmission failure
- Death
- Deductible
- Overdue payments and late fees
- Security deposits
- Lease penalties for excessive use
- Down payment for a new car
Where or Whom can I buy car dealerships from?
You can buy car gap insurance from several platforms; below are the top three places:
- Car insurance companies
- Banks
- Credit union
- Car dealerships
- Car Insurance companies
What Insurance Companies Sell Gap Insurance?
Many car insurance companies offer gap insurance; however, gap insurance states are not sold in some available them,
below are a listed few:
- Allstate
- American Family
- Auto-Owners
- Erie
- widen wide
- Progressive
- Shelter
- State Auto
- Travelers
- Westfield
Why Do I Need Gap Insurance?
You can only need car insurance depending on how much you have left on your car or the amount the vehicle is worth.
If you have enough money to settle the gap, you surely do not need gap insurance as they help you pay your balance.
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