Gap insurance covers the difference in the value of the vehicle and the balance of the car loan; it can be purchased from car dealers, auto financing companies and your insurance agent.
Gap insurance is a special insurance coverage that is available for your new vehicle to protect you from financial hardship in the event of your vehicle being a total loss in an accident.
It is a coverage that is only offered in certain circumstances and can vary in price depending on who sells gap insurance. If your new vehicle qualifies for Gap coverage it is best to shop around for the coverage and not accept the first offer.
What is Gap Insurance?
If you were to get into a car accident and the damages to your vehicle exceed a certain percentage of the value of the vehicle (usually 80%) the insurance company will total out your vehicle and pay you for the value of the vehicle instead of fixing it.
Sometimes though the amount that they pay your does not meet the amount that you may still owe on your car loan. For example, the insurance company may pay you $8,000 for your vehicle, but you still owe the bank $10,000. This $2,000 dollar gap is exactly where gap insurance comes in handy.
If you purchased gap Insurance on your new vehicle, it would step in and pay for that $2,000 left over on your car loan so that you were not still paying on the loan even after you no longer had the car. Gap can only be purchased on new vehicles and certain used vehicles depending on the insurance company and the coverage always has to be purchased within a certain frame right after buying the new vehicle.
Car Dealers Sell Gap Insurance
When you purchase a vehicle from a car dealer and sign the finance papers with them, one thing that they will offer to you is gap insurance. It is part of the paperwork that they go through with you when they are trying to get you to add warranties, extra interior packages and whatever else they may be able to throw in to increase the price of the vehicle.
If you add gap coverage at this time it will be added into the total amount of your vehicle that you are going to finance. Even though the gap coverage does not seem like a lot when you break it down into your monthly car payments, the total amount that you are paying is quite high and you could possibly get gap insurance cheaper from other sources.
Finance Companies Sell Gap Insurance
Just like when the dealership sets up the financing with you and offers gap insurance so do auto loan financing companies. If you plan on getting a loan through your bank or other source and purchasing your vehicle that way, they too are going to offer you gap insurance when you sign the loan papers. Again, just like with the car dealerships the price that they offer their gap insurance for could probably be found at a lower price elsewhere.
Insurance Companies Sell Gap Insurance
The least expensive way to purchase gap insurance is to purchase it through your insurance agent. The gap coverage can be added to your current insurance policy when you add your new vehicle to the policy. The cost to do this is considerably less expensive than adding it to your car loan. For more information and to find out the requirements to have this coverage, contact your insurance agent.