Gap insurance is a type of auto insurance. Therefor car owners purchase it to protect themselves against losses of car values. It arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle’s financing or lease agreement. It pays the difference between what you owe on your car and what it’s worth at the time of an accident.
What is Guaranteed Auto Protection( GAP) insurance on a car?
Gap insurance is an optional coverage. It pays the difference between what your vehicle is worth and how much you owe on your car at the time it’s stolen or totaled. So this coverage supplements a comprehensive or collision car insurance payout, which can only be as high as your car’s value.
For example, if you owe $20,000 on your car loan but your car is only worth $15,000 at the time of an accident. Then gap insurance would cover the $5,000 difference between what you owe and what your car is worth. Car insurance coverage Types
How much is average cost of gap insurance?
Gap insurance is usually an inexpensive coverage. For example according to Forbes Advisor’s analysis of costs from large insurance companies, it adds an average of $60 a year to your car insurance cost. However, the cost can vary depending on the insurer and the state you live in. How to get cheap car insurance?
Is gap insurance worth the cost?
Gap insurance is worth it if you owe more on your car loan or lease than your car’s value. It bridges the difference between your insurance payout and your loan balance. Therefor it can help you avoid paying out of pocket if your car is totaled or stolen. That is to say the cost of it is low if you buy it from your comprehensive car insurance provider. You should shop around for the best on cheap car insurance companies deal and compare alternative products.
Gap insurance on a new car, is worth it only as long as you are leasing a car or if you owe more on a loan than your car is worth. You don’t need it if you don’t have a car loan or lease.
Do i need gap insurance if i have full coverage?
Yes, you need gap insurance if you have full coverage and still owe money on a car loan or lease. GAP Insuranse is not mandatory as liability only car insurance. But you need it even if you have full coverage car insurance. Because full coverage does not cover the difference between what you owe on a loan/lease and the car’s actual cash value.
You don’t have to buy this insurance. But if you decide you want it, shop around. Lenders may set varying prices for this product1.
when does it not pay?
Gap insurance does not pay when a car needs normal repairs. Because property damage car insurance pays normal damage. But when a car damaged but not declared a total loss, or when a driver does not make the necessary payments. It only pays when the car totaled and there is a difference between the lease or loan balance and the car’s value.
There are different types of gap insurance policies that you can choose from. Here are some of them:
- Back to invoice gap insurance: This pays you the difference between what your car insurer will pay out in the event of your car being written off or stolen and the original amount you paid for it OR the amount you owe to a car finance company.
- Vehicle replacement gap insurance: This pays the difference between your insurer’s payout and the cost of replacing your car with a new one.
- Contract hire gap insurance: This covers the difference between what your insurer will pay out and what you owe on a contract hire agreement.