Gap Insurance Coverage

WHAT IS GAP INSURANCE?

Gap Insurance is a type of insurance coverage offered to new car buyers or auto lease customers. Gap insurance does not take the place of your regular car insurance. It does pay the difference between what you owe and what the vehicle is worth in the event the car is stolen or destroyed.

For example, if you purchase a new car for 20K, then have a serious accident a few months later, your insurance co. will only reimburse you up to the market value of the car. Your $20K car may have depreciated by 20% (or $4000.00), leaving you responsible for that amount.

New cars generally will experience their greatest percentage decline in value immediately following their purchase, so there's a period of time where the remaining car payments exceed the amount the insurance co. will pay for a 'totaled' (stolen, destroyed, or write-off) vehicle. Gap auto insurance was created to provide additional coverage to consumers with car leases or extended term auto loans. A Gap waiver provides protection for consumers when a difference exists between the actual car value and the amount of money owed to the bank or leasing co.

DO I NEED GAP INSURANCE?

Before buying or leasing a new car, check with your current auto insurer. Gap coverage may already be included. If not it can be purchased separately, often online.

SHOULD I BUY GAP INSURANCE FROM THE DEALER?

Car dealers may sell Gap Insurance, but often at a higher premium.

"Dealers typically charge $500-$700 for gap coverage that can be bought online for $300 or so." source: USA Today

Be sure to compare rates from the dealer, your insurance agent, and online to get the best rate. In any case, having the insurance before you drive off the lot is the smart choice.

More Information on Gap Insurance

Hopefully, the above article provided some additional information about what gap insurance is, in context with car insurance.