Gap Insurance Exists for Drivers with Specific Needs
Gap coverage exists to protect 2 specific types of drivers against the costs of a total loss: those who are financing, and those who are leasing. If you own your car free and clear, or owe less on your loan than the car is worth, you do not need gap insurance.
What’s the “Gap” in Gap Insurance?
Simply put, the gap is the difference between the car's actual cash value and how much a driver owes on it. The gap develops due to depreciation. As you know, a car becomes "used," and therefore begins to depreciate the moment you drive it off the dealerships lot.
Depreciation means that a car is worth significantly less than what you bought it for mere months after its purchase. If you purchase a car for $30,000, its value may have dropped to $26,000 just 2 months later, and if you've been making payments of $500 a month, that means you owe $3,000 more than it's actually worth. In the insurance world, that gap makes you "upside down" on your loan.
GAP insurance is the difference between the actual cash value of a vehicle and the balance still owed on the financing (car loan, lease, etc.). GAP coverage is mainly used on new and used small vehicles (cars and trucks) and heavy trucks. Some financing companies and lease contracts require it.
How Does Gap Insurance Work?
Gap insurance is an optional, add-on car insurance coverage that can help certain drivers cover the “gap” between the amount they owe on their car and the car's actual cash value in the event of a serious accident.
If you're financing a vehicle for a dollar amount that's larger than what the vehicle is worth according to blue book standards, Gap insurance can be a good idea. However, if you're financing the vehicle for less than the car is worth, gap insurance isn't usually necessary.
ELG Top Tip
“If your vehicle is totaled in an accident and you owe more than it is worth, be sure to check with your auto insurance agent to see if you have Gap Coverage, but also your lender who holds the lien because the Gap Premium could been included with your financing.”
We hope you found this article both interesting and helpful. If you have any questions or concerns regarding your specific vehicle loan and insurance situation, we encourage you to contact your insurance agent, your auto insurer or your lien holder (the bank) to further discuss this topic and see if Gap Insurance is right for you.
The law firm of the Eshelman Legal Group has been helping injured people for over 40 years. You can call our office, live chat or message us and we will be glad to help you. Remember, your initial consultation is always free and if you decide to have us represent your case, you do not pay anything unless we win your case. Contact us today and get your answers.
If you have been injured because of someone else's negligence, Call the Eshelman Legal Group at 1-800-365-0001
The Eshelman Legal Group
The attorneys at the Eshelman Legal Group understand that no matter how cautious you are, others may not be so careful, and accidents do happen. So we hope you don’t need to, but if you are in a situation where you need the advice of an personal injury attorney, the Eshelman Legal Group is here to help you. For over 40 years we have been assisting accident victims, and we are here to assist you too... because “We’ll make things right.”
Ask yourself this question… who does the adjuster work for? The adjuster works for the insurance company, they do not work for you.