How Does Gap Insurance Work?

car gap insurance

You spent a lot of time finding the perfect car to meet your needs, your budget, and your lifestyle. Chances are that you made some concessions or engaged in serious negotiations to get the features you wanted at a price you were willing to pay.

Now it’s time to protect that investment. When shopping around for new car insurance, you’ll hear a lot about the need for gap insurance coverage, but t you might not hear much about how it works.

What is Gap Insurance Coverage?

Say you have an accident in your shiny new car and it is totaled. When the insurance company settles the claim and determines how much it will pay you for the damages, little details like depreciation of the vehicle are factored into the equation. Depreciation is loss in the value of the vehicle over time.

A new vehicle can depreciate as much as 20% the moment you drive it off the lot, and for the

first few years you own the car, will continue to depreciate at a faster rate than you can pay down the principle on your auto loan. This means there is a gap between the actual cash value (ACV) of your car and what you owe the finance company.

Should your car be declared a total loss in the event of an accident, you’ll not only be left without a car, but you could  still owe thousands on the  totaled vehicle.

How Does GAP Coverage Help?

Gap coverage is a type of insurance that kicks in after an accident to  cover the gap between the ACV of your car (what the insurance company will pay) and the amount you owe the loan company who financed your vehicle.

While this type of coverage can keep you from owing money to the lending institution financing your vehicle, there are a few things it won’t cover:

  • The value of your car if it is repossessed
  • A down payment for a new car
  • Balances carried-over from previous car loans that may have been rolled into the new car loan
  • Any extended warranties that have been added to the car

Gap coverage also does not assist with the costs of repairs to your vehicle after an accident or a rental while your car is in the shop.

As auto makers add new technology to cars, prices are rising, resulting in longer loan periods to offset the higher cost of the vehicle. As a result, many new car owners find themselves in a bind with finance companies, owing thousands of dollars when they have an accident. gap coverage  Gap coverage can be instrumental in helping you to avoid  financial fallout if your new vehicle is totaled.

To learn more about how gap insurance coverage can help protect you, give us a call here at BOLT Insurance Agency.