Either you get your vehicle stolen or totaled, gap insurance will rescue you. But what does gap stand for? It is the short form of Guaranteed Asset Protection Storage.
Companies that offer gap insurance:
These are some companies that offer gap insurance:
If your car gets stolen or caught in an accident and you owe more than its actual value, gap insurance will cover the difference between the lease left on your car and its actual value. Gap insurance becomes effective for car drivers who do have car insurance.
However, the other insurance policies will cover the actual value of your car at that time. You will still have to pay the loan to fully pay off your car – even if that compensation amount is not significant enough to do so.
This is the point where most of the drivers would need gap insurance.
Gap Insurance pays the amount owed to a car after a loss:
Gap insurance boosts the amount you will get for collision and comprehensive coverage for your car. Typically, to buy gap insurance, borrowers need to get collision and comprehensive insurance for the time period of their loan.
Collision and comprehensive coverage only pay for the car’s current worth at the time of accident or theft. Then what’s the purpose of gap insurance? It will be helpful when you owe more on your loan than that amount.
In some rare instances, gap insurances also cover comprehensive deductibles, the amount deducted from a claim payout.
How does gap insurance work?
Let’s assume if your new car gets stolen, which is worth $25,000 and your loan on the car is $30,000. Your comprehensive insurance (if you have it) will pay for the value of the car, which is $25,000; however, before that, you have to pay $500 for a deductible. Now, after receiving the claimed amount, you will still be left with 5,500 on your car loan.
This is where the gap insurance will help you out. The remaining 5,500 amount will be covered by gap insurance.
Why should you have gap insurance?
People who have fully paid off their cars or paid loans below the car’s value – don’t need to have gap insurance.
However, those who have just got a newer loan may want to consider whether they would be able to pay the difference if their new car caught in an accident or got stolen. If they think they cannot afford it, then having gap insurance is beneficial for them.
Eligibility for Gap insurance:
The eligibility criteria for gap insurance vary from company to company. You may require fulfilling one of the requirements below.
- The car must be leased under your name
- Your car should be 2 to 3 years old
You can buy gap insurance from any of the following:
- Your car dealer
- Directly from the insurance company
- Your lender or dealership