What Is Gap Insurance For Car s
What Is Gap Insurance For Car?
What Is Gap Insurance?
Gap insurance is an insurance policy designed to protect the holder if they are in an accident and their car is declared a total loss. This coverage is designed to fill in the “gap” between what the car is worth and what is owed on the loan. Gap insurance is typically offered by the car dealership or the finance company, but it can also be purchased from an insurance company.
Gap insurance is also known as loan/lease payoff coverage or guaranteed auto protection (GAP). It can be very helpful for borrowers who are upside down on their car loan, meaning they owe more than their car is worth. If a borrower has a loan balance of $20,000 and their car is worth $15,000 after an accident, gap insurance will cover the $5,000 difference. Without gap insurance, the borrower would be responsible for the entire balance.
Who Needs Gap Insurance?
Gap insurance is not right for everyone. It is most beneficial for people who are upside down on their car loan or people who are leasing a car. It can also be beneficial for people who have a car loan with a high interest rate and a long loan term, or people who drive a car that depreciates quickly.
Gap insurance is not necessary if you are not upside down on your loan or if you have a loan with a low interest rate and a short loan term. It is also not necessary if you have a car loan with an extended warranty that will cover the gap. If you are unsure if you need gap insurance, you should speak with your car dealership or finance company for more information.
How Much Does Gap Insurance Cost?
The cost of gap insurance varies depending on the type of coverage purchased and the length of the policy. Most gap insurance policies are purchased for one year and the cost is typically between 1-4% of the cost of the car. For example, if the car costs $20,000, the cost of gap insurance could be as much as $800.
Gap insurance can also be purchased in monthly installments. The cost of monthly installments is typically higher than the cost of an annual policy, but it can be more convenient for some people.
It is important to note that gap insurance is not always required. Some car loans include gap insurance, so it is important to read the terms of your loan to see if you already have coverage.
How Does Gap Insurance Work?
Gap insurance works by covering the “gap” between what the car is worth and what is owed on the loan. If the car is declared a total loss after an accident, the insurance company will pay the difference between what the car is worth and what is still owed on the loan.
For example, if a car is worth $15,000 and the loan balance is $20,000, gap insurance will cover the $5,000 difference. The insurance company will pay the difference directly to the lender.
It is important to note that gap insurance does not cover any other costs associated with an accident, such as towing fees or rental car fees. It only covers the difference between what the car is worth and what is still owed on the loan.
Conclusion
Gap insurance is an insurance policy designed to protect the holder if their car is declared a total loss. This coverage is designed to fill in the “gap” between what the car is worth and what is owed on the loan. Gap insurance is typically offered by the car dealership or the finance company, but it can also be purchased from an insurance company.
Gap insurance can be beneficial for people who are upside down on their car loan, have a car loan with a high interest rate and a long loan term, or people who drive a car that depreciates quickly. The cost of gap insurance varies depending on the type of coverage purchased and the length of the policy.
Gap insurance is not always required and it does not cover any other costs associated with an accident. If you are unsure if you need gap insurance, you should speak with your car dealership or finance company for more information.
