A Quick Guide on Gap Insurance
Should I buy gap insurance?
It will cover the difference between what your car is worth and what you still owe on the car. If your car is totalled to the point that repair costs are more than the car is worth, or if it’s stolen, gap insurance covers the difference between the market value of the vehicle and your outstanding loan.
How does gap insurance work?
Let’s say you buy a new car for $20,000 and it’s involved in an accident and totalled.
Your insurance company will determine the value of your vehicle at the time of the loss and they will only pay you that amount less your deductible.
If the market value is less than the amount that you still owe on the car, gap insurance would pay the difference between what collision insurance covers and what you owe on the car. If you did not have gap insurance, the extra would come out of your pocket. (Also, if your insurance company determines that your deductible applies, that money will come out of your pocket, gap insurance won’t cover it.)
Gap coverage for lessors:
If you are leasing a vehicle, even though you aren’t buying it outright, you are still responsible for the cost of the car if it is stolen or totalled. Because lease payments are significantly lower, the difference between what you have paid and the value of the car can be huge, so gap insurance is much more critical for a lease and many lease contracts require it.
Gap insurance for buyers:
For buyers, this will only be necessary if you expect to owe more on the car than what it’s worth. If you made a low down payment, or if you bought a car that depreciates quickly, or if you have a high interest rate or if you rolled over other costs, like money owed on a trade-in into your new-car payments, having gap insurance makes alot of sense. Most buyers, however, especially those who made a high down payment, will always be right-side-up on the car, and therefore they don’t need the extra coverage.
Who should buy gap insurance?
If you are leasing a car or you expect to owe more than your car is worth for a significant amount of time, you should consider purchasing this valuable coverage.
Who should not buy gap?
If you have arranged your down and monthly payments to make sure you will not be “upside down” on your loan for any significant period of time, there is no need to buy it.
Austin Insurance Group | Local Texas Auto Insurance Agent | (512)339-2901