There is a growing number of people taking out gap insurance when they are buying a new car. They see this insurance as being absolutely essential. Gap insurance for your car is designed to cover the difference between the amount of money that is still owed on a vehicle’s loan and the amount which an insurance company would be prepared to pay out if that vehicle were to be involved in a serious accident, totaled, or stolen. It therefore bridges the gap between the two amounts, hence its name.
The need for car gap insurance is based on the well known fact that a car will depreciate in value as soon as it is driven off the dealer’s lot. If that car were to be damaged beyond repair in an accident or stolen during the course of the loan agreement, even with full comprehensive coverage the insurance company would only take into consideration the current market value of the car and not the loan value. The car owner could potentially be responsible to pay the thousands of dollars that make up that difference between market value and the remaining loan balance. The remainder of the loan on the car would have to be repaid regardless of the amount the insurance company valued the car and decided to pay out. This is when gap insurance becomes invaluable. The gap insurer would pay out the remainder of the money owed, which would allow the car loan to be paid off in full.
Car gap insurance will usually be offered by the car dealer when you are buying your new car as part of the loan agreement. It is an additional benefit that you can purchase at that time. Your monthly payments will therefore be for the cost of the car and include the premium for the gap insurance. The insurance itself is usually not very expensive and will not have a huge effect on your monthly payments. However, that is not to say that you have to accept the dealership’s offer. Although the gap insurance they provide may be a low cost, you may still find additional savings by shopping around for better deals on the premiums through private insurers.
In addition, it may not be necessary to purchase gap insurance at all. It may be included as part of your current car insurance. It is worthwhile to check since not all insurers or states will provide gap insurance to their customers. If your current car insurance policy does not include gap insurance, it may make sense to purchase a separate car gap insurance policy for your financial peace of mind. While gap insurance is not a legally required form of insurance like liability coverage, it does allow drivers to be fully protected should their car become totaled. Considering the cost of cars and their repair bills, gap insurance is a valuable and affordable form of protection for car owners.