Gap Insurance

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Gap Insurance ... what is it and do I need it?

GAP insurance is designed to protect you and your family from an unexpected financial obligation if your vehicle is declared a total loss from causes such as theft, accident, fire, or flood by covering the monetary difference between what your car is worth and what you owe on it. Some policy coverages are better than others, so be sure and read the fine print.

It is usually sold for new or "newer" vehicles, but many times is "required" when leasing vehicles.

When buying gap insurance, remember that some policies may not cover cars that are deemed total losses from other causes, such as theft and natural disasters.

Gap insurance is usually available as an additional coverage on your auto insurance but you may be able to find a better deal by doing a little searching, especially online. Gap insurance is mostly available for newly purchased vehicles, so you may not find an insurance provider who will offer it for older vehicles.

Gap insurance is typically not very expensive, since the coverage amount is relatively small. GAP insurance is usually available for automobiles, motorcycles, vans, and light trucks, including sport-utility vehicles.

Remember, GAP insurance is designed to “close the gap” between the actual cash value or insurance settlement and the loan payoff amount.

Gap Insurance Coverage

Gap insurance coverage is not usually available for older cars.

Most companies that finance cars require full coverage insurance but not Gap insurance. That being said, if the owner chooses NOT to buy GAP insurance and they had a total loss of their vehicle, the owner would have to pay the depreciation difference.

Because a car depreciates almost immediately,you could literally drive off the lot having what you consider to be full coverage, but if the car is totaled, you could owe 20 to 30 percent of the amount financed.

Some insurers include the benefits of gap insurance in their regular comprehensive automobile coverage.

Gap insurance policies can differ in the way that the coverage is provided.

The cost per month for this coverage is typically less than the cost of a tank of fuel, and could save you thousands of dollars out of your pocket.

Before you buy a separate gap coverage, you also need to make sure that it is not covered by your existing insurance company and/or included in the lease payments itself.

Unless your insurance company offers Guaranteed Replacement coverage, GAP insurance is a pretty wise decision.

Some lenders and leasing companies actually require you to carry gap coverage until the outstanding loan/lease amount drops below the value of the vehicle.

Gap Insurance Common Sense

Read your lease or your gap insurance policy to find out whether you are covered for all types of total losses or only in case of an accident.

Depending on the policy, Gap insurance usually covers accidents and thefts, but not all policies are the same so it's a good idea to evaluate the coverages being offered before purchasing Gap insurance.

If you have taken an auto insurance policy but not taken gap insurance, check the policy terms. If terms state that the policy will pay off the fully financed amount, you need not take gap insurance.

Gap insurance is important because standard comprehensive and collision auto policies only cover your car's "fair market value," which can be as little as 80% of what you paid for your car, starting the minute you drive it off the lot.