What is Gap Insurance?
If there’s one type of car insurance coverage that isn’t understood well, it’s gap insurance coverage. Gap insurance is there to protect you if you are involved in an accident in a car that you are making payments on through a lien or lease. But why should that coverage be any different from standard car insurance coverage? Compare.com breaks down gap insurance coverage and what it means to you.
Is Gap Insurance Worth It?
In many cases, yes! It’s all about the depreciation of your vehicle. If you purchase a new car for $25,000, it will decrease in value the instant it leaves the car lot (somewhere between a 10% and 20% loss). A $25,000 car will instantly depreciate to around $23,000. If you leave the car lot and get into an accident that leaves your car declared a “total loss”, your auto insurance company will pay you for the value of the car after depreciation. This means you get paid $23,000 for the loss of the vehicle, even though you still owe $25,000 on the loan. The same scenario also applies if that brand-new car is stolen. Gap insurance is there to pay the difference between what you owe and what your insurance paid for repair or replacement.
How Much Does It Cost & Where Can You Buy It?
It’s very common for a company leasing a vehicle to require that you, the lessor, carry gap insurance for your leased vehicle. If your lease contract does not require you to purchase a specific gap insurance policy, you should shop around to get the best price. Comparing prices is the best way to make sure you’re not paying more than necessary for your gap insurance coverage. Unfortunately, Compare.com doesn’t offer gap insurance comparison but there are many insurance companies out there that do. Another coverage to consider that Liberty Mutual carries is their better car and new car replacement. In cases where your car is declared a total loss, you may be able to get a new or better car depending on what coverage you choose.
Gap insurance, though common, is a bit of a specialty product. Your best bet is to work with a broker to find out which car insurance company can offer you the best deal on your gap insurance. Prices vary and it is optional so weigh out your options, especially if you are buying a used car. It may be a coverage that you want to cancel after the first year or two, depending on the rate of depreciation on your make and model of vehicle.
Read Over the Policy’s Small Print
It’s also a good idea to read your gap insurance policy carefully to see if it requires you to have comprehensive and collision insurance coverage as well. If so, you would not qualify for a payment from the gap insurance unless you also carried comprehensive and collision insurance coverage. Sometimes the auto insurance company or even the lease agreement may require that your coverage meets certain minimum limits to ensure that there is enough auto insurance coverage to pay for damages.
If you have trouble understanding the terms of your gap insurance coverage, we recommend contacting your current insurance company for assistance.