Gap insurance, also known as "guaranteed asset protection" insurance, is a type of coverage that helps to protect car owners from financial loss in the event of a total loss or theft of their vehicle. It is particularly useful for individuals who have recently purchased a new car or are still making payments on a car loan.
Gap insurance is designed to cover the "gap" between the amount that is still owed on a car loan and the actual cash value of the car at the time of a total loss or theft. For example, if a car owner is in an accident and the car is deemed a total loss, the insurance company will typically only pay out the actual cash value of the car, which may be less than what is still owed on the car loan. Gap insurance will cover the difference, meaning that the car owner will not be left with a significant financial loss.
There are a few different types of gap insurance available, including:
Finance gap insurance: This type of coverage is typically offered by car dealerships and is included in the cost of a car loan. It covers the gap between the outstanding loan balance and the car's actual cash value.
Lease gap insurance: This type of coverage is designed for individuals who are leasing a car, and it covers the gap between the remaining lease payments and the car's actual cash value.
Return-to-invoice gap insurance: This type of coverage will cover the gap between the car's purchase price and its actual cash value, which is useful if the car is a total loss and the owner wants to replace it with the same model.
It is important to note that gap insurance is typically only valid for a limited period of time, usually between 12 and 24 months after the purchase of the vehicle. Additionally, most regular auto insurance policies already have a gap coverage included, so before buying gap insurance is important to check with your auto insurance company if you already have this coverage.
In conclusion, gap insurance is a valuable coverage for car owners who have recently purchased a new car or are still making payments on a car loan. It helps to protect individuals from financial loss in the event of a total loss or theft of their vehicle and can provide peace of mind knowing that they will not be left with a significant financial burden.
