Let’s face it, not many people today can buy a car outright. There is typically some sort of loan or lease involved when purchasing a car. Luckily, gap car insurance covers the price difference between the actual value of your car and what you owe on its loan.
You’ll want to have such a gap segment to your policy if your car is stolen or totaled in an accident. In the case of a severe accident, the cost to repair your car can be more than its overall worth.
Other scenarios where you may encounter this difference in car value is if your vehicle is damaged by theft, fire, flood, vandalism or natural disasters. In such instances, car insurance companies normally pay the actual cash value of a vehicle. Unfortunately, that may be substantially less than its retail value. At the end of the day, many consumers are left footing the bill for the money they owe on their car loans or leases.
Additionally, gap insurance is especially important when you lease a car. A lot of consumers make the mistake of entering into lease agreements without thinking of the future value of their cars. Even with a lease agreement, you are still responsible for the cost of the vehicle if it gets stolen or damaged.
Still, leases are attractive to consumers because they can enjoy low monthly payments. But these reasonable payment options create a big gap between how much of the car is paid off and its real value. This piece of an auto policy is ideal for drivers who expect to owe more than the car is worth when their lease has ended.
When getting car insurance quotes, know that gap plans can vary from company to company. Don’t just shop around for the best rate. Some insurance providers will cover your deductible, while others will replace your vehicle even if the retail value is higher. Although many leasing companies will add gap insurance to their agreements, be aware that it is not an option automatically included in all lease agreements.
As you can see, the security of having gap insurance benefits you financially in case of unforeseen events, but not everyone needs this kind of car insurance. A shopper who puts a good percentage down on a car and has moderate monthly payments is less apt to have a huge variation in what they owe.
Lastly, gap insurance also makes sense if you finance more than the purchase price of a car. Let’s say you include additional services and extras in your finance agreement - this drives up the amount you owe. Tacking on things like extended warranties, sales tax, vehicle registration, and service plans widens your car’s value gap.