What is Gap Insurance?
If you owe more on your car than it is actually worth, gap insurance can protect you.
What is gap insurance? It covers the gap between what you owe on an auto loan or lease and the vehicle’s value as determined by the insurance company in the event of a total loss.
How would you wind up in that gap? Many car buyers don’t know that if the car is declared a total loss because of an accident or theft, their insurance company isn’t obligated to pay off your loan (unless you’ve bought new-car replacement coverage). Your insurance company is only obligated to pay you the market value of the car, which can be far less than what you actually owe.
If you owe more on a car than it is worth, that’s called being “upside down.”
An example: A driver still owes $19,000 on a car that is totaled, but the insurance company determines the vehicle’s market value is only $14,000. Without gap insurance to cover the $5,000 difference, you could still be making car payments, without the car!
Is gap insurance is right for you?
You’re financing a car with little or zero down. If you don’t put money down, you’ll be upside down as soon as you drive away. It could take several years of loan payments before the loan amount and the car’s actual value match up.
You’re trading in an upside-down car and adding the amount you still owe to your new car loan. If you trade in an upside-down car or truck, the auto dealer can add what you still owe to the new loan (unless you pay that difference up front in cash). This additional debt increases the gap between what you owe and what the car is worth, and puts you at real financial risk if your car or truck is totaled or stolen.
You’re buying a vehicle that loses value quickly. Some vehicles lose value quickly, and you could be really upside down (unless you’ve made a down payment of at least 25%.)
You drive a lot of miles. Piling on the miles can really reduce a car’s value. If you think you’ll be reducing the value of your vehicle faster than your payments are dropping your loan amount, you may want gap insurance.
You’re taking out a really long car loan. When you take out a loan longer than 60 months, it will take much longer to hit the break-even point, when your loan balance and the car’s value are the same.
When you’re initiating a car loan or lease, contact Page Insurance about gap insurance.