Gap insurance is a car insurance coverage that pays off your auto loan if your car is stolen or totaled and you owe more than the car's market value.
How does Gap Insurance Work?
When you finance or buy a new vehicle, the vehicle loses value as soon as you drive it off the lot. Most cars lose 20% in value within the first year. The standard auto policy only covers the market value of the car on the time the claimed is filed. If you only put down a small deposit, the loaned or owed amount may be more than the market value. Gap insurance covers the difference between the owed amount and your auto policy coverage. For example, let’s say your car is totaled or extremely damaged, the current market value is $35,000 but you bought the car last month for $45,000. Your auto policy covers the market value which is $35,000. This is where the importance of gap insurance comes into play. Gap insurance will cover the gap between the current market value and the amount owed, which is this case is $10,000.
When might a vehicle need Gap Insurance?
If the vehicle down payment is 20% or less of the vehicle’s price
If it’s a leased car; it is required for leased cars
If the vehicle is known to depreciate in value
If purchasing a vehicle with significant value
If you don’t have enough savings to cover the difference between the amount owed and Actual Cash Value
Where can you find Gap Insurance?
Car dealerships do offer Gap Insurance on your newly financed or leased vehicle. However, they charge more than insurance agencies. If you already have an auto insurance policy, you may want to add Gap Insurance to your policy, since it only adds about $20 a year to the annual premium.
For further questions and concerns, please contact your insurance provider or feel free to give us a call, 310-698-0140. We will gladly assist you. Thank you!