GAP Car Insurance

What Is GAP Car Insurance and Why You Might Need It?

Why would a GAP car insurance policy be necessary for anyone that is financing or leasing a car?

The reason is because your standard comprehensive and collision car insurance policy only covers you for your new cars fair market value and that is typically only 80% of your cars value.

If you get in a wreck and your car is "totaled" by your car insurance company then you (yes YOU!) will be required to pay the difference between what the balance you owe on your car loan and what your car insurance company deems to be "fair market value". And what they call fair market value is often substantially lower than what you might get for it had you sold it just prior to getting in the wreck.

Here is a typical scenario... 

You buy a new car for $20,000 and owe $18,000 on it. Since driving it off the lot your car immediately depreciates about 20% in value.

Now your $20,000 new car is only worth about $16,000 ($20,000 X 20% = $4000.00). 

You get in a wreck and your insurance company "totals" your car and cuts you a check for about 80% of its value which means the check is only about $12,800 ($16,000 X 20% = $3200).

Okay, since you still owe $18,000 on the loan and the insurance company gave you only $12,800 - guess who's obligated to pay the lender the difference between what you owe and what the insurance company paid you?

YOU - and that means you have to write a check to the lender for $5200.00! OUCH!

Now IF you had GAP insurance then the GAP insurance would pay that difference and you wouldn't have to fork over all that money. Seriously, for a measly $300 one time fee, I'm sure you can see why GAP insurance is a pretty smart investment, right? Right!

The same scenario goes for your car if its stolen too...and for leased cars too!

You should know this about GAP insurance...

1) A GAP auto insurance policy lasts for the life of your primary car loan.

2) Your vehicle must have been purchased, refinanced or leased within the last 90 days to be eligible for Gap car insurance.

3) A GAP car insurance policy will cover you for the difference between what you owe on your car loan or lease and what the insurance company says your car is worth.

4) The most vulnerable time for you is in the first couple of years you own a new vehicle because you are usually known as being "upside down" with your car loan. Being upside down merely means that you owe more on your car loan than what your car is worth if you tried to sell it at that moment because you didn't have gap auto insurance.

Most new car owners aren't aware that in this situation you're not fully covered by your car insurance company.

GAP auto insurance will cover you for the "gap" between what you owe on your car and what you're covered by with your primary insurance company. It will also cover you for the deductible on your primary insurance policy too.

GAP auto insurance is cheap with a one time payment and is good for the life of your existing car loan.


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