Common Gap Insurance Questions
Gap insurance can be a tricky coverage to understand. It is not the most common insurance coverage and does not apply in many situations. Get answers to some of the most common gap insurance questions to see if gap insurance is right for you.
If your vehicle is in an accident and declared a total loss, the insurance company pays you what your vehicle is worth at the time of the accident assuming you have purchased the appropriate coverage.
For various reasons, what the vehicle is worth is sometimes a lot less than what you actually owe. Gap insurance covers the difference between what the vehicle is worth and what you owe.
Gap insurance is typically bought and purchased at the same time a new vehicle is bought and purchased. Most insurance companies allow you to purchase gap insurance on a new vehicle which was purchased within the last 30 days.
Am I required to purchase gap insurance?
There are times when gap insurance is required. Often when you lease a car or do not make a down payment on a new vehicle, the lender requires gap insurance. If gap insurance is required, it is on your loan or lease contract.
Is gap insurance expensive?
Gap insurance actually tends to be really affordable. Depending on a few factors including your driver risk and the type of vehicle you are purchasing the rate could be as low as two dollars a month.
Where can I get gap insurance?
Gap insurance can be purchased through both your car insurance carrier or sometimes your lender or lease company offers it. They are about the same cost wise, but purchasing through your lender might be a little easier in case you ever want to switch car insurance.
Does gap insurance cover my warranty or prior car loan roll over?
Gap insurance only covers money financed for the vehicle.
Warranties and car rollovers will not be covered by gap insurance. Financing warranties and prior car debt should be avoided. You could be stuck paying for those expenses even if your car is totaled.
Gap insurance usually only applies to brand new vehicles. Loan lease payoff coverage is available through some insurance carriers and provides coverage for older vehicles. Loan lease payoff comes with some extra stipulations, usually regarding how much they will pay out. Loan lease coverage is often capped at 25 percent of your vehicle's overall value.
Gap insurance can be canceled once you owe less than what the vehicle is worth. It can be a little tricky determining when that time has come. It is better to get a bit ahead of what you might think the vehicle is worth just to be on the safe side.
What is depreciation?
Depreciation is one of the main reasons for gap insurance. Many times a vehicle depreciates faster than you can reduce your auto loan. Depreciation correlates to how fast your vehicle loses value. You have probably heard the biggest depreciation occurs when a vehicle is sold and driven off the dealer's parking lot.
At that time, the vehicle is no longer brand new, it has lost value.