What is Gap Insurance and How Does it Help When a Vehicle is Totaled?

Gap insurance is an optional form of coverage that helps you cover the difference between what you owe on your car loan and what your car is worth in the event that your car is totaled or stolen. If you have a newer car that you bought with a loan, gap insurance can be an important protection against a total loss.

In the event that your car is totaled, you will be paid out the actual cash value of your car by your auto insurance company. However, this amount may not be enough to cover the amount of money you still owe on the car loan. This is where gap insurance comes in. Gap insurance will cover the difference between what you owe on the car loan and what your car is worth.

How Much Does Gap Insurance Cost?

The cost of gap insurance depends on your car loan amount and the vehicle's value. It is usually a percentage of the car loan amount, and can range from 1-5%. The cost of gap insurance can also be affected by the type of car you have, as some vehicles may cost more to insure than others.

When Is Gap Insurance Necessary?

Gap insurance is not necessary for everyone. If you have an older car or a car loan with a low balance, you may not need gap insurance. Also, if you purchased your car with cash, gap insurance is not necessary, as you will not owe any money on the car in the event of a total loss.

However, if you have a newer car with a loan balance that is higher than the car's value, gap insurance can be a good investment. If your car is totaled or stolen and you still owe money on it, gap insurance can help cover the difference between what your car is worth and what you owe.

Conclusion

Gap insurance is an optional form of coverage that can help you in the event that your car is totaled or stolen. It can cover the difference between what you owe on your car loan and what your car is worth. Gap insurance is not necessary for everyone, and the cost of gap insurance will depend on your car loan amount and the vehicle's value.

If you have a newer car with a loan balance that is higher than the car's value, gap insurance can be a good investment. It can help protect you from financial loss in the event of a total loss.