With cars selling for significantly over the sticker price right now, you may be offered gap insurance when you purchase your vehicle. Should you get it? Your auto policy may cover the value of your vehicle if it is totaled or stolen, but what happens if you owe more on your loan or lease than what your vehicle is worth?
What is Gap Insurance?
Gap insurance is a supplemental insurance policy you purchase that bridges the gap between what your collision and comprehensive policy covers and what you owe on your vehicle. Collision and comprehensive insurance only covers what your vehicle is worth at the time of theft or accident. When you owe more on your vehicle than what it is worth, gap insurance makes up the difference.
How Does Gap Insurance Work?
For example, if your car is totaled and worth $25,000, but you still owe $30,000 on the vehicle, there is $5,000 that isn’t covered by your collision and comprehensive insurance. Gap insurance covers the remaining $5,000, so you don’t owe money on your totaled car. If you didn’t have gap insurance, you would owe the remaining $5,000 plus whatever the cost of a new car.
Do I Really Need Gap Insurance?
Gap insurance may not be the right thing for everyone. If you paid in full for your vehicle and don’t have a lease or loan, you don’t need gap insurance. Also, if you’ve paid down your vehicle and the amount you owe is less than the value of the vehicle, you don’t need the additional gap insurance.
If gap insurance is right for you, don’t purchase it through the dealership. You’ll end up paying a lot more than you should. A dealer may offer to roll the cost of gap insurance into your overall loan. This is generally not a good idea as you won’t need gap insurance over the life of your loan. The vehicle depreciates over time and you pay down the loan.
If you think you might need gap insurance, contact us. We can help you find the right coverage for your circumstances.