Is your vehicle financed? If you are still in the process of making payments on your vehicle, you should take the time to understand just how gap auto insurance coverage works, and how carrying this optional form of coverage can benefit you in the event of a physical damage claim. When you purchase a new or used vehicle, it is very common for the finance department to try and sell you vehicle add-ons, warranties, and even gap insurance after you have agreed on a monthly payment and purchase price. While buying the gap insurance coverage at a premium price through the dealership is an option, leading auto insurance companies also offer this coverage option for a low premium for newer vehicles that qualify for coverage. If you do not currently have gap insurance, or you are in the process of buying a new car and you do not know whether or not to purchase this coverage, read this basic guide and learn everything that you need to know.
How Much Do You Owe on Your Car?
To decide whether or not buying gap insurance is necessary, you need to know how much you owe on your financing and how much your vehicle is worth at the present time. In the eyes of the insurance company, when your vehicle is totaled the company will base the insurance claims valuation on the fair market value of the vehicle. If you do not carry gap auto insurance and you owe more on your vehicle than the insurance company believes it is worth, you will have to come out-of-pocket to pay your vehicle off if it is totaled in an at-fault accident. If you carry gap auto insurance coverage, the coverage will kick in to pay off the remaining balance of the car loan when the car is totaled due to a covered loss and collision insurance does not pay the entire balance.
Verify Whether or Not You Currently Have Gap Insurance
Many times, borrowers already have gap insurance and do not know it. If you are unsure, it is in your best interest to contact your lender or your credit union to see if you have it. If there is no record of you purchasing gap insurance, make sure to add this into your insurance quotes if you owe significantly more on your car than it is worth. This is usually the case on vehicles that are purchase brand new for at least the first 2 to 3 years of the finance contract. Be sure to review the restrictions of gap insurance for each insurer. Typically, the vehicle must be less than 3 years old and have less than a specified amount of mileage to qualify for coverage.
Supplemental coverage like gap insurance can truly help you during a difficult time. Some insurance companies will even offer a deductible waiver or up to $1000 towards the purchase of a new vehicle when you carry gap and your new vehicle is totaled. Price the cost of coverage, compare rates, and select the best policy from a reputable carrier.