What is gap coverage and do you need it?
Gap insurance is an optional car insurance coverage that you can choose to add on.
Gap insurance helps certain drivers cover the “gap” amount between what your car is worth and what you still owe on your auto loan in the event that your car is totaled.
For example, if you still owe $12,000 on your auto loan but your car’s depreciated value is $10,000, gap insurance would help you cover the $2000 gap that your collision coverage does not cover. You may consider investing in gap insurance if you are leasing or making payments on your vehicle.
Gap coverage covers damage to your vehicle, negative equity, and may even cover theft if your car is stolen and cannot be recovered. Gap coverage however, does not cover deductibles, injury or death, or engine failure.
Gap coverage is often sold at car dealerships but can usually be bought cheaper from an insurer according to the Insurance Information Institute. Keep in mind, some insurers may require you to be the original owner of your vehicle or that the vehicle is at most 2-3 years old. Also, many insurers have a limit the will go above the value of the vehicle to satisfy the loan, usually 125%. So, if you owe $15,000 and the car is worth $10,000, the highest most insurance companies will pay out is $12,500.
If you find yourself “upside down” on your auto loan, gap coverage may secure you in the event of an accident and help you stay out of debt in the future.
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AZ Insurance Team
*All policies are a little different and this may not be applicable to your insurance policy, talk to your agent to see what your policy covers.*