When you go to get a quote from your insurance agent, they may ask you if you want gap coverage. Don’t know what gap coverage is? Gap coverage protects you from depreciation. When you buy a car, it’s value starts to decrease right away. If you finance or lease a vehicle, this depreciation leaves a gap between what you owe and the car’s value.
Example: Let’s say you buy a new car and financed it for $35,000. You’ve had it for about 3 years and have been making all your payments. It’s now worth $27,000 but you still owe $32,000 on it. There is a gap of $5,000 and your car is now worth less than what you owe on it. If the vehicle is totaled in an accident, your insurer would pay you $32,000 (minus your deductible) if you have gap coverage. If you do not have gap coverage, you would only receive what the car is worth, in this case, $27,000.
What Exactly Does Gap Insurance Cover?
Not only does it cover your vehicle if it is totaled, but if your car is stolen, this coverage will pay the actual cash value of the vehicle minus your deductible.
Keep in mind – gap insurance does not cover other property or injuries as the result of an accident, nor does it cover engine failure or other repairs.
Do I Need Gap Insurance?
Gap insurance is not required – unless you have a lease and the leasing company requires it. Also, some dealerships will automatically add gap insurance to your loan. Other than that, having gap insurance is up to you.
If You're Thinking About Getting Gap Insurance..
Ask yourself this. Is their a significant difference between your cars value and what you owe on it? If so, gap insurance would be worth it for you.
How Much is Gap Insurance?
It varies by insurer, Progressive offers it for only $5 per month on average.
If you are interested in adding gap to your policy, talk to your insurance agent!