How Does Gap Insurance Work?

In case your car is totaled or stolen and you owe more than the depreciated value of the vehicle, gap insurance helps pay off your auto loan. A loan-or-lease gap policy is also known as gap insurance. In this case, the insurance coverage applies only to the original borrower or lessee of a new car. Gap insurance pays the difference between what you still owe on the car and what the car is worth.

WHAT ARE THE BENEFITS OF GAP INSURANCE?

If you’re leasing or financing a new car, your creditor will often require you to carry comp and collision and coverage on your car insurance until you have paid off the car.

The purpose of gap insurance is to cover a gap in the coverage provided by collision or comprehensive coverage. You will be able to recover up to the depreciated value of your stolen or wrecked vehicle under your collision or comprehensive coverage if you have a covered claim. New cars lose value as soon as you drive them off the lot. In addition, most vehicles depreciate by 20 percent in the first year of ownership. However, what happens if you still owe more than the depreciated value of the vehicle on your loan or lease? A gap insurance policy may be able to help.

GAP INSURANCE: WHEN TO BUY

In the event that your vehicle is stolen or totaled and you are underwater on your auto loan (meaning you owe more than it is worth), you may be eligible for gap insurance coverage. A totaled vehicle is one whose repair costs exceed its value. State law and your insurer’s discretion determine whether your vehicle is declared totaled.

GAP INSURANCE IS AVAILABLE AFTER YOU BUY A CAR?

According to the model year of the vehicle, gap insurance may be available after you buy a car. Some insurance companies offer gap coverage with their car insurance policies, not just at car dealerships. The cost of gap insurance from an insurance provider is often cheaper than from a dealer.

Insurance companies may require you to purchase gap insurance if your vehicle is brand new. A lease or loan may mean, for example, that you are the original owner of the vehicle. A vehicle that is two to three model years old, for instance.

Find out what qualifications are required for gap insurance from your insurer.

CAN GAP INSURANCE SAVE YOU MONEY?

It’s important to keep in mind that gap insurance may only be available if you’re leasing or financing a new vehicle. Take into consideration how much you owe on your auto loan and how much your car is worth. How much do you owe on your auto loan? Are you able to pay the difference if your car is totaled out of pocket? Gap insurance may be of use in the following situations: When you paid less than 20% down on your vehicle and a 60-month or longer auto loan.¬† Lease contracts often include gap coverage when you lease a new car. Find out if yours includes it.

We can assist you with gap insurance purchases at Safepro Insurance Services