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The loan still has to be paid, and a regular insurance policy is only going to pay the current replacement value of the vehicle. While this is a big help, it may be that you owe a lot more on the loan than what the insurance company is willing to pay. This is why many people decide to buy GAP insurance.
GAP Insurance Defined
In a nutshell, GAP insurance is coverage that will pay the difference between what you owe on a vehicle and what it is actually worth if it is totaled in an accident. Let’s break it down into numbers so you can see how it really works. If you purchase a vehicle that costs $20,000, you will make a down payment, probably around $500. Now you owe $19,500. Let’s say you make five monthly payments at $300 a month, for a total of $1,500 then you get into an accident and total the vehicle. You still owe $18,000 on the vehicle, but your insurance company is going to look at the blue book value, which will probably be considerably less.
You are still expected to pay off the balance of your loan. How are you going to pay for it? If you buy GAP insurance, you will not have to worry about coming up with enough money to pay off the balance. The one thing you do need to remember is that there are limits to how much a GAP insurance policy will pay out, and you may not be able to completely pay off the loan, depending on the limits that are set in your policy. Another thing you need to keep in mind is your deductible. You will have to pay this before you can receive any money for your claim.
You Might Want to Buy GAP Insurance if You Buy a New Car
Depending on how much of a down payment you put on a new vehicle, you could end up being upside-down if you end up in an accident and the vehicle is a total write-off. There are other reasons why you could be upside-down. If you have a high interest rate or you rolled over other expenses into your car payments, you could end up owing a pretty penny if you don’t buy GAP insurance. If you don’t want to pay for this extra coverage, you need to think about increasing the amount you are willing to pay for a down payment in order to not be upside-down in the event of an accident that destroys the vehicle.
You May Be Required to Buy GAP Insurance
If you are leasing or financing a vehicle, it may be that you have no other option but to buy GAP insurance. In some states, it is actually a requirement for lessors to suggest that customers buy this type of insurance coverage. Some contracts require that GAP insurance be included with the actual loan payments, which can come in handy, except that you may not be able to shop around to choose your own insurer. It is a good idea to buy GAP insurance whether or not it is required, because you don’t want to have any added expenses if you end up totaling the vehicle and have to buy another and still pay off the one that was totaled.
Get Quotes before You Buy GAP Insurance
The only way you are going to know whether or not you are getting the best rates for all of your insurance coverage, including GAP insurance, you need to shop around. After all, you would do this for any big-ticket purchase, so why wouldn’t you want to make sure you also get the best deals on car insurance? Shopping around means getting quotes from as many insurers as possible, which used to take a lot of time and effort.
Today, you can do it all online, and we can make the job even easier. Give us your zip code, and we will enter it into our databases to get quotes from insurance companies in your area and many of the national insurers too. Then, you can buy GAP insurance knowing that you are not paying too much for it.