When buying or leasing a car, one type of insurance that will probably be mentioned is auto gap insurance. You may not realize what it is or if it is needed. While it is not necessary in some cases, it can be beneficial in others. The key is to understand what it can do for you and then evaluate the cost versus the risk of not having it.
What is Auto Gap Insurance?
Gap insurance for you car covers the difference between the actual cash value of your car at the time of total loss or theft and what is still owed on the vehicle. If you still owe $20,000 on your vehicle at the time it is stolen or considered totaled and the insurance adjuster says the car is only valued at $15,000, then you will need to come up with $5,000 to pay off your lender. Auto gap insurance will step in and pay the $5,000 difference.
Auto Gap Insurance for Car Owners
Where auto gap insurance can really be beneficial to car owners is in the first few years of ownership. At that time, the depreciation on the vehicle moves much faster than your paying down of the loan. Once you drive the car off the lot, if you didn’t put several thousand dollars down, you are already behind. With interest and fees added to the value of the car, it takes quite a while until you are ahead. Keep in mind, that gap insurance policies will require that you maintain collision and comprehensive coverage while the gap policy is in effect. Gap insurance also has no bearing on your state’s minimum requirements for car insurance.
Auto Gap Insurance for Car Leasers
If you lease your vehicle or are thinking about leasing, you should know that most leasing contracts will require you to have gap insurance. This is to protect them in case something like mentioned above happens to the leased vehicle. If your lease does not contain this mandated coverage, you may want to shop around for it on your own. The same reasoning for owned vehicles applies to leased vehicles. A stolen or totaled leased vehicle is still your responsibility and a gap in value can still exist.
Do You Need Auto Gap Insurance
The need for auto gap insurance depends in large part of your current auto insurance policy. If you have guaranteed replacement cost as a part of your coverage, you are in pretty good shape. Of course guaranteed replacement cost is more expensive coverage than actual cash value coverage. What you want to see in an auto insurance policy that will eliminate the need for gap insurance is that they policy will pay off the entire financed amount in case of total loss or theft. This, of course, costs extra, so you want to compare the cost of gap coverage with fully financed amount pay off.
How Much Does Auto Gap Insurance Cost
To find out if you truly need auto gap insurance and if it is an affordable option, you can get rate quotes to see how it will affect your premiums. Quotes are free and take only a few minutes to see just how much it will cost to add this coverage to your auto insurance policy. You can then compare that to how much it costs to add coverage for the fully financed value of the car. You can use our free rate quote tool to do just that and decide if auto gap insurance is right for you.
Auto Gap Insurance Is it Needed?
March 17, 2015March 17, 2015 0 Comments