If you are leasing or financing your car, you will want to consider getting gap insurance. Appropriately named, this coverage fills in the gap between what you owe on the loan/lease and the actual cash value in the event an accident results in the total loss of the vehicle. Some insurance companies offer gap insurance at no extra cost, meaning it is built into the coverage on your policy. Other carriers will charge a small amount to include this coverage.
How it Works
If your car is a total loss in an accident, the insurance company will pay you the actual cash value (ACV) of the vehicle. If this amount is less than what you still owe on the car, you will find yourself still paying for a vehicle that has been destroyed in an accident. Gap insurance solves this problem by paying the difference between what the car is worth and what you owe on the lease.
EXAMPLE: Your vehicle cost $32,000 brand new and after a year, you have driven it 30,000 miles and it is now worth $24,000. However after making a year of payments you still owe a loan balance of $27,000. The car is suddenly destroyed in an accident and the insurance company pays you the actual cash value of $24,000. You still owe $3,000! Gap insurance would pay this difference.
If you would like to protect yourself with gap insurance, select the coverage when you are shopping for car insurance quotes and it will be factored into your premium payments.
TIP: Make sure you understand all instructions on your gap policy. Some policies require you to continue paying all your payments until the car is paid off. This might mean that you pay your note even though your insurance company has not made a settlement on your vehicle.
Some leasing companies requires the lessee to carry gap insurance when you get auto insurance for a financed car. When you get financing for your car, be sure to ask if you are required to have gap insurance under the terms of your lease agreement.
If it is not included with your auto coverage shop around for the best policy and rates, and compare car insurance quotes to find the best gap insurance prices.
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