Gap Auto Insurance
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Gap auto insurance is insurance coverage that covers the "gap" between what you currently owe on your auto loan and the current market value of your vehicle. These types of auto insurance policies were designed to protect you in the event that your car is stolen or totaled and the amount your normal auto insurance will cover is less than what you owe on your loan. Gap auto insurance is also frequently required with a vehicle lease to protect the leasing company in the event that the car is lost or destroyed.
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A Gap Insurance Example
If your loan amount is $24,000 on a new vehicle and immediately after signing the loan papers you total the car, then your car insurance will likely only give you the Blue Book quote amount. You would receive a check for around $21,000, but you still owe an excess of $3,000 on the loan. This gap in coverage is covered by the gap auto insurance policy.
Purchasing Gap Insurance
This type of coverage is a must have for any new car purchase, as the car’s value drops significantly as soon as it is driven off the car lot. Gap insurance is not required when you buy a new car, but in the case of an accident, this type of coverage can protect your investment.
More and more auto insurance companies are starting to offer gap insurance, including AIG, Progressive, and Allstate. In fact, many states now require that all companies who sell auto insurance also offer this additional coverage. If your current company does not offer gap auto insurance, you can often purchase it from a company as an independent policy.
Who Needs Gap Auto Insurance Coverage?
As stated before, anyone leasing a vehicle will generally be required to purchase this additional coverage. Additionally, those purchasing a new car should strongly consider purchasing gap coverage. As a rule of thumb, the more expensive the new car purchase, the greater the need for this extra insurance.
There are some rules to follow to help you decide if you need gap car insurance:
- Do you owe more on your car than it is worth? If so, then you need to buy it.
- Do you live in a high theft area? If so, you may wish to buy the added coverage it provides.
- Do you like protecting your investments? If so, this insurance is for you.
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