Do you know what would happen if your new car or lease is totaled? Many drivers assume that their car will be replaced at the amount they paid, or at least, the amount they owe. However, that’s not always the case. This is where gap insurance comes in, but is it right for you? Learn why gap coverage for your auto insurance policy is so important and what you can do to protect yourself.
Do I need Gap Coverage?
So what is gap coverage? Gap stands for guaranteed asset protection and is an optional auto insurance coverage that helps transfer the financial risk if you are involved in an accident and owe more than what your vehicle is worth. Since a new car’s value drops significantly the minute it’s driven off the lot, if you are involved in an accident that totals your vehicle in the first few years of ownership, you may find yourself owing the finance company more than the vehicle’s actual value. Gap insurance helps to fill the “gap” between the two amounts.
Is Gap Insurance for Everyone?
New vehicle financing options:
If you took advantage of a low or zero percent down payment deal or stretched the life of your loan past 3 years, a gap policy is likely a good idea. This is because the vehicle typically depreciates considerably faster than you have paid down the value on your vehicle’s loan.
As for used vehicles, gap coverage is typically not available. To cover your risk, it’s wise to put an ample down payment and finance the vehicle for the shortest possible time frame.
For those who lease a vehicle, gap coverage is considered an essential coverage. Typically there is no trade-in and little cash put down to lease the vehicle. Similar to purchasing a vehicle, if the car is a total loss, you will owe the difference between what you have paid and what you owe on the balance of the lease.
If you are leasing or making payments on a vehicle, you should consider gap insurance and speak with your insurance agent about your options.
What does gap insurance cover?
Now that you know what gap insurance is, what exactly does it cover? Here are a few common questions related to gap coverage:
Does gap insurance cover theft?
Yes, gap insurance may cover theft in the event your car is stolen and unrecovered.
Does gap insurance cover deductible costs?
No. Even if an accident is covered by your gap policy, you are still responsible for your deductible. In other words, if the gap reimbursement amount is $4,000 and your deductible is $500, your total reimbursement amount would be $3,500.
Does gap insurance cover engine failure?
No. Mechanical repairs are not covered by gap insurance. Gap coverage only kicks in if your vehicle is deemed a total loss.
We’re Here to Help
We can help you determine if gap insurance is right for you. If you’re purchasing a new vehicle, just call us at 724-929-2300 to learn about how gap insurance can complement your auto policy coverage. For more ways to save on auto insurance, check out our article Auto Insurance Discounts.