Updated: Sep 20, 2020
Car Insurance is Complicated
Gap insurance: it seems like there’s always something about insurance that we don’t know. There are so many different types of policies and details. Which one is best for you? Is gap insurance something that you need? What is it? Will it cover all totaled vehicles? This article will explain this type of insurance and dispel any myths that might be floating around.
What is Gap Insurance?
Most of us are not lucky enough to be able to walk into a dealership and write a $30,000 check for a new car. More often than not, we are financing or leasing the vehicle we drive. If that is your situation, then gap insurance might be right for you. Essentially, it covers the “gap” between what you owe and what the car is worth. In order to determine this number, you must consider depreciation. Unfortunately, new cars lose value the very second that you drive away in them. After that, they will steadily decrease in value over time as you pay off your loan. During that time, you are living in the “gap”.
How Does Gap Insurance Help You?
If we are fortunate, we never have to worry about filing a claim for a totaled vehicle. Still, it happens to people every day. When you contact your insurance company after a serious collision, they will review your policy and coverage. Without gap insurance, they will cover the car’s current value. So, let’s say your car is worth $18,000 at the time it is totaled. However, you still have a loan of $21,000 that you are paying off. That leaves a gap of $3,000 for which you are now responsible. And, you no longer have that totaled car. So, you are left with a bill for a nonexistent vehicle. This is where gap insurance is a saving grace.
When You No Longer Need Gap Insurance
Gap insurance is only necessary when there is a gap between what you owe and the car’s value. Once you have paid off your loan and own the vehicle, you will no longer need gap insurance. Also, if you are not leasing, it isn’t necessary. And if your car is worth more than you owe, this isn’t something to worry about.
What Are the Next Steps?
It’s a good idea to contact your insurance provider and see if you currently have gap insurance. If not, ask how much it might cost to add it to your policy. After that, the best thing to do is compare with quotes from other companies that offer all the types of coverage you need. Now maybe a good time to switch. You never know what the future holds. Insuravita helps ensure that you’re ready.