What is Gap Insurance?
Did you know that your new car loses value as soon as you drive it off the lot? That’s right; even if your car was brand new, it is now a used vehicle, and its value has dropped. This depreciation in value continues the longer you have a car. If you have a loan out, you may be getting farther from the amount you borrowed, making a gap between the amount you owe and what your car is actually worth.
This situation is where a coverage called Gap Insurance comes in, which is important to understand and consider. Let’s talk about what gap coverage really is and whether or not it is worthwhile for you and your new car.
What Is Gap Insurance?
Gap insurance is a coverage for newer cars that is usually an optional addition to your auto insurance policy. Gap insurance will cover the difference between the Actual Cash Value (ACV) and the amount you owe on your loan. This can sometimes be a substantial difference.
What Happens If I Don’t Have Gap Insurance?
If you get into an accident and you do not have gap insurance, your car may not be paid off for the full amount of your loan. If your car is totaled or stolen, your settlement will be based on your car’s ACV and not the amount that you paid for the vehicle. There is a chance that this settlement will not cover the amount you still owe on your loan or lease, since your car has depreciated in value since you bought it. So now you have no car, plus a bill to pay to your lienholder.
Is Gap Insurance Required?
It depends on your lienholder, but they could require gap insurance. The lender for your car loan will require collision and comprehensive coverage, but they might also require that you purchase gap insurance. The same goes for a leased auto. In fact, the cost of gap insurance could be added into your lease payment.
You should discuss all required coverages with your lienholder before you sign any paperwork.
Where Do I Get Gap Insurance?
Most likely, when you purchase or lease your new vehicle, the dealership will offer you gap insurance. This insurance will come straight through the dealership, so it can be very simple to sign up for it. It will probably just be included in your paperwork. Be aware that the cost for gap insurance will probably be highest at the dealership, so be sure to shop around beforehand.
You can also get gap insurance from most banks. Check with the bank from which you receive your loan. Ask them about gap coverage, and compare the price with that of the dealership.
Your auto insurance company may also offer gap insurance. Call your insurance agent to find out. If you have Infinity, you can simply call 1-800-INFINITY. This can be a good option because it will probably be a good rate and it will be with a company that you already trust to insure you. Not all insurance companies offer gap insurance.
Now that you know more about gap insurance, you can decide whether or not it is a coverage worth looking into for your vehicle.
For great rates on car insurance, visit our Auto Quote Page.
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