Many people assume that the reason it is called gap insurance is because it covers the difference between what you owe on your car and what the insurance will pay for in the event that you get into an accident and the car is totaled.Â The word “gap” actually stands for “guaranteed auto protection”.Â If you don’t already have gap insurance with your current policy, it might be something to think about adding, especially if you have recently purchased a new vehicle or are currently leasing a vehicle.Â
When you drive a car off the lot it automatically depreciates.Â If you pay $25,000 for the vehicle and you have an accident one month later, you probably have only made one payment.Â If the car is determined to be totaled, you are at a loss because the insurance company will only pay you the market value of your vehicle.Â So if your $25,000 vehicle depreciated by 20%, you would only receive $20,000 from the insurance company.Â That leaves $5000 left that is uncovered.Â If you took out a loan to pay for the vehicle, you are still responsible to pay off the loan, which means you will be paying for a car that you can’t drive.Â Gap coverage can help cover the difference, but it frequently excludes things like “rollover” balances from trade-ins and is often capped at a percentage of the vehicle value, so make sure you understand all of the terms and conditions.Â
As you can see, gap insurance is essential when purchasing or leasing a new vehicle.Â For more information about gap insurance and free quotes, please contact a representative at our California auto insurance(link to www.aisinsurance.com) agency.
This content is offered for educational purposes only and does not represent contractual agreements. The definitions, terms and coverages in a given policy may be different than those suggested here and such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.