Why do I need GAP insurance?
GAP insurance is an optional form of car insurance coverage for drivers financing their new vehicles. You need GAP insurance to cover your vehicle in case it is totaled in a car accident before you finish paying off your car loan. GAP insurance will cover the difference between the actual value of your car and the amount you still owe on your loan if your vehicle is totaled in a collision or accident. Use our free comparison tool below to compare GAP insurance rates near you.
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UPDATED: Sep 19, 2020
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- GAP insurance covers you where your standard policy does not.
- Some car loan companies even offer a form of GAP insurance called a GAP Waiver
- GAP insurance is not required by law
GAP insurance is an optional form of coverage anyone financing a late model car should have.
GAP insurance is not required by law as it is not a form of liability coverage but rather a form of insurance designed to help protect you from financial losses due to the value of your vehicle.
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How does GAP car insurance work?
Under the standard terms of a comprehensive/collision car insurance policy, you will have coverage for damage to your vehicle however in the event of a total loss the amount of the claim will be subject to a vehicle’s book value.
GAP car insurance provides additional coverage for the difference of the GAP between your basic coverage and the amount you owe on a loan.
Let’s use this example:
You purchase a new car for $35,000, and six months later the vehicle is totaled.
Based on book value the car may be worth up to 30 percent less – somewhere around, however, your car loan is only 6 months old and you still have a balance of $32,500.
This is a serious dilemma as the car insurance company will write a check for $25,000 minus your deductible, yet you owe the car loan company $32,500.
This (GAP) difference of at least $7,500 you are still personally liable for!
If the vehicle owner had GAP Insurance then it would kick in and write a check for the GAP amount of $7,500. Without GAP insurance he just incurred a pretty large debt and has no vehicle to show for it.
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Is GAP insurance expensive?
No. GAP car insurance is very cheap and can be added for usually under $20 a month.
Some car loan companies even offer a form of GAP insurance called a GAP Waiver which can be included in your monthly payment – see our full GAP insurance section here.
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