How does gap car insurance affect your coverage? Gap insurance is also known as “totaled” insurance. It covers your vehicle’s loan amount and actual cash value. Because it depreciates once the vehicle has been driven off the dealer’s property, this type of insurance is required almost every time a new vehicle is purchased. This is also required for lease vehicles as there is almost always an amount that a person owes if the car has been totaled.
You may be able to get “totaled” insurance if you own a used vehicle. Here are some examples of situations where gap insurance might be necessary:
* Gap insurance may be useful if you trade in your car to buy a newer model. If you trade in a vehicle with a 6 year old warranty, but still owing money, for a 2 year-old model, your existing loan would be rolled into the new car payment. Your loan amount for the 2-year-old vehicle would be higher than its actual value. Gap insurance is a smart choice in this situation. It would cover the difference between your loan amount and actual cash value to protect you from an accident that results in the total loss of the vehicle.
You realize you overpaid after purchasing a used car. Therefore, the outstanding loan on the vehicle is higher than its actual value. If the vehicle were totaled, insurance will only cover the actual car’s value and not the amount you paid. It would be a good idea to get “gap” insurance. This would provide you with coverage that covers the actual value of your vehicle, and the gap insurance would pay the remainder.
* You have low credit scores and no down payment but need a car. The only way to get a car is to buy it from a dealer that offers financing without a down payment, but at a higher interest rate. The vehicle’s actual value will be less than the price you pay. Similar to the above cases, insurance companies would only cover the cash value of your car. Gap insurance would protect the rest.
There are many reasons why you might want to buy insurance that provides “gap” coverage. These are the requirements most states have in common:
* You may not be able find gap car insurance for older vehicles than 8 years.
* You can purchase insurance for your used car from a variety of insurance companies even after you have purchased your vehicle.
You don’t need gap insurance if you paid cash for your vehicle. Gap insurance covers the difference between the cash value and what you owe on the loan. You cannot purchase gap insurance if there is an outstanding loan.
Gap insurance is not offered by many car dealerships. You will need to search online for companies that offer this service.
* Research as many companies and providers as possible before you decide to buy gap insurance. Gap insurance is not necessary if your car’s actual value exceeds the amount you owe on it.