What is Gap Insurance?
Gap insurance, also known as guaranteed asset protection, is a type of insurance designed to cover the difference— or gap— between the actual cash value of a vehicle and the amount still owed on the loan or lease in the event of a total loss. This situation often arises when a vehicle is stolen or declared a total loss after an accident.
How Does It Work?
When you purchase a vehicle, it typically depreciates in value quickly. If your car is totaled shortly after you buy it, the insurance payout may not fully cover your outstanding loan balance. Gap insurance bridges that gap, ensuring you don’t have to pay out-of-pocket for the difference.
Who Should Consider Gap Insurance?
Gap insurance is especially beneficial for individuals who:
- Make a small down payment on a new vehicle.
- Finance their vehicle over an extended period.
- Drive a car that depreciates faster than average.
Is It Necessary?
While not required by law, gap insurance can provide peace of mind for drivers concerned about potential financial loss. It's often available through dealerships and insurance companies, and the cost varies based on the vehicle and personal circumstances.
In summary, gap insurance is a valuable financial tool to consider when purchasing a vehicle, ensuring that you remain protected from unforeseen financial burdens in the event of a total loss.