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Gap Insurance: What It Is and When You Need It

Posted on 2023-04-13 17:06:28 by iNF
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Gap Insurance: What It Is and When You Need It

When you purchase a new car, it starts to depreciate as soon as you drive it off the lot. This means that if you get into an accident and your car is totaled, your insurance company might only pay you the current market value of the car, which could be less than what you owe on your car loan. This is where gap insurance comes in.

What is Gap Insurance?

Gap insurance is a type of car insurance coverage that can help protect you financially if you owe more on your car than it's worth. It can pay the difference between what your insurance company pays for your totaled car and the amount you still owe on your car loan.

How Does Gap Insurance Work?

For example, let's say you owe $20,000 on your car loan, but your car is only worth $15,000. If your car is totaled, your insurance company might only pay you $15,000. Without gap insurance, you would still owe $5,000 on your car loan. But if you have gap insurance, it could pay the $5,000 difference, which means you wouldn't have to pay anything out of pocket.

When Do You Need Gap Insurance?

So when do you need gap insurance? If you have a loan or lease on a new or used car, you should consider getting gap insurance. This is especially true if you put down a small down payment or have a long loan term, as both of these factors can contribute to being upside-down on your car loan if your car is totaled.

Gap insurance is often offered by car dealerships and finance companies, but you can also purchase it separately from your auto insurance company. It's usually relatively inexpensive, with premiums often costing only a few dollars per month.

In summary, gap insurance is an important type of car insurance coverage that can protect you financially if you owe more on your car than it's worth. If you have a loan or lease on a car, it's worth considering getting gap insurance to ensure you're fully covered in case of an accident.

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