If your vehicle is stolen or declared a total loss, gap insurance, an optional auto insurance plan, may be applicable. Gap insurance pays the difference if your loan balance exceeds the value of your car. For instance, if you have a loan balance of $25,000 but your automobile is only worth $20,000, your gap insurance will pay the $5,000 difference after deducting your deductible.
How does gap coverage operate?
You are shielded from depreciation through gap insurance. After you purchase an automobile, its value begins to decline, sometimes noticeably. If you loan or lease a car, this depreciation creates a discrepancy between your debt and the worth of the vehicle. Let’s examine an example with and without gap insurance.
What is covered by gap insurance?
Anytime your car is stolen or wrecked in an accident, gap insurance kicks in. When you submit a valid claim, your comprehensive or collision insurance will reimburse you for the vehicle’s ACV, less your deductible. The discrepancy between your vehicle’s ACV and the remaining balance on your loan or lease may then be covered by your gap insurance. If the limit on your gap coverage is high compared to the value of the car, it might only cover a fraction of the outstanding balance. Please take note that gap coverage could not extend to additional loan-related costs like finance or excess mileage fees.
Remember that gap insurance doesn’t cover additional property, accidents-related injuries, engine failure, or other repairs.
Is gap insurance necessary?
No state or insurer mandates the purchase of gap insurance, however some leasing firms may. Additionally, some dealerships may automatically add gap insurance to your loan when you buy a new automobile, but you can choose not to have this coverage.
How much does gap coverage cost?
Each insurer has a different price for gap insurance. Progressive offers a precise pricing for loan/lease payback coverage, also known as gap insurance. We’ll respond to your online request for a car insurance quotation in a matter of minutes.
How long is gap insurance effective for?
When gap insurance is added, it becomes effective for the whole term of your policy. You won’t require gap insurance for the full term of the loan, though. You can stop paying for the insurance whenever your debt is less than the value of your car.
How to get a gap insurance policy
Although some dealers offer gap insurance for both leased and financed autos, the combined lease/loan payment may cause you to pay interest on your gap coverage. It may be wiser to purchase gap insurance from your motor insurer.
