Car insurance can seem like a simple issue until you get into a crash and actually have to deal with trying to get a fair settlement. One issue many people have questions about is gap coverage.
Generally speaking, when you sustain a car accident and suffer a total loss to your car, if the other driver was at fault, his or her insurance should pay for your loss. Assuming everything else goes smoothly, the insurer will pay for the total value of the car.
What gap insurance is
The problem with that is that your car begins to drop in value as soon as you leave the dealer’s lot. If you bought your car a few years ago, its value at the time of the accident could be several thousand dollars below the price you paid for it. However, this lower value is what the insurance company will pay you. You will still be on the hook for the car loans you took out based on the price you bought the car for.
Gap coverage can help you avoid a situation where you have to make car loan payments for a totaled vehicle. It provides coverage for the disparity between the current value and the amount you still have left to pay off.
Who needs gap coverage the most
Clearly, if you do not have loan payments to make on your car, you do not need gap coverage. On the other hand, in some situations, gap coverage can be especially important in protecting from financial burden. You may need this additional coverage if you financed most or all of your purchase, or if you included add-ons such as service plans in your financing. If your loan has an extended term, you can also be at risk for a large gap between the value of your car and your loan amount. Cars that lose value especially fast can also cause a wide gap.
Options for purchasing
Consider your options carefully when selecting a policy. Your regular insurance company may offer it as an add-on to your existing policy and may be willing to give you a good deal. Car dealerships may also offer gap coverage but tend to charge substantially higher rates. You should also pay attention to the types of losses covered in addition to car accidents.