What Is Gap Insurance And When Do You Need It? Johnson City Toyota

What is Gap Insurance and When Do You Need It?

If you are considering buying or leasing a new car, you might have to consider various aspects of insurance and financing before you drive it home. Apart from the primary collision or comprehensive coverage, you might also get offered gap insurance from the dealership where you look for your car. If you want to determine whether this is the right insurance plan for you, read on to understand more about gap (Guaranteed Asset Protection) coverage.

What is Gap Insurance?

Gap insurance helps you pay the difference between what you owe on your car loan and your car’s worth if it is totaled in a covered accident, stolen or suffers any other loss. Many insurance providers also call this a lease or a loss payoff coverage. Gap insurance plays an important role in the auto industry because as soon as you drive your car off the lot, its value begins to depreciate and within the first year itself, your car depreciates around 20% to 30%, depending on its make and model. In such cases, having gap insurance by your side will help you save thousands of dollars in the case of a mishap where your car is written off and you still have an auto loan to pay off.

Do You Need It?

The best way to determine whether you need this insurance is to make a quick comparison. Consider the balance on your auto loan (you can get this information from your lender) and check your car’s current value (also known as Actual Cash Value – ACV.) You can find various online tools to determine the latter. If there is a huge gap between these two amounts, and you don’t have that much cash lying around, getting a gap insurance is surely important for you.

What Does It Cover?

Let’s consider a simple scenario to understand what gap insurance will cover:

$30,000 – The amount of money you owe to your lender/finance company (including your principal amount and interest).

$26,000 – Amount of money your insurance company says your car is currently worth, your ACV during the time of an accident or theft.

$4,000 – Difference between the insurance value of your car and your balance on the loan.

$4,000 – The additional money your insurance provider will pay if you have taken gap insurance along with your policy.

Where Can You Get It?

You can buy gap insurance through various sources. You can choose to buy it from the dealership where you purchase your car or from your lender if you are taking out a car loan. You can also reach out to an auto insurance company for this particular plan. Make sure to compare the prices to get the best deal on your policy.

A Few Additional Notes:

• If you are leasing a car, gap insurance will usually be included in the contract itself.
• In order to avail the coverage, it is important to buy the protection from a financial institution and not an individual.
• Also, you must have comprehensive and collision coverage on your car.
• To use your gap insurance, your vehicle must be declared a total loss and your claim should be covered under your comprehensive or collision policy.

Understanding these aspects of gap insurance will help you make the right decision for your car and your finances.