An auto Gap insurance policy is important because a standard collision and comprehensive auto policy may only cover a new car’s “fair market value”. Fair market value may be as little as 80% of what you paid for your car, and starting the moment you drive it off the lot fair market value decreases. If you have financed your car and have a total loss your auto insurance may not cover the full amount you owe on your loan, and you could end up paying off a loan for a car you can’t even drive.
This is where gap insurance comes in. A gap car insurance policy insures for the difference between what you owe on your car and what your insurance company says it’s worth or the fair market value. Most auto leases will require gap insurance or stated value policies.
Gap insurance coverage would also be important if your car is stolen. Thieves love new cars, and they look for specific models, which are usually the most popular models of cars sold. If your car is stolen, comprehensive insurance will cover the fair market value of the vehicle, but not necessarily the value of the loan that you owe to the bank. You could be stuck paying for a car that’s gone. Add that to the terrible feeling of having your car stolen, and it can make anyone very unhappy.
Auto gap insurance is not a policy car owners need forever, but for the first few years of new car ownership, it can give some peace of mind. GAP insurance usually doesn’t cost much, and there are a few different gap car insurance policies to choose from. Most dealerships and auto leasing companies offer gap insurance policies, but these usually have a much higher premium. You’re better off finding your own gap insurance policy.
Not all insurance companies offer gap insurance and if you already have an auto insurance company you like, you may not be interested in changing companies just to add a small gap insurance policy. If you contact your auto insurance agent and are told you can’t purchase a gap policy you might try Driver’s Select. An agent specializing in gap insurance will explain the coverage, and you won’t have to alter your current policy in any way.
Another option when insuring an auto is to consider a Stated Value Policy which will be the topic of the next Blog.
Blogs In This Series: Auto Insurance Policies 101:
- Liability Coverage
- Uninsured & Underinsured Motorist
- Medical Insurance & Personal Injury Protection
- Optional Coverage-Collision
- Optional Coverage-Comprehensive
- Optional Coverage-GAP
- Additional Auto Insurance Coverage
Glossary of Insurance Terms:
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