ORLANDO, Fla.— GAP insurance is different than a gap (lapse) in your car insurance coverage. GAP Insurance is the difference between the actual cash value of a vehicle and the balance still owed on the financing (car loan, lease, etc.) GAP coverage is mainly used on new and used small vehicles (cars and trucks) and heavy trucks. Some financing companies and lease contracts require it.
Gap insurance is meant to be used in conjunction with collision coverage or comprehensive coverage.
How It Works
- Standard car insurance does not pay what you owe on a car.
- Car insurance typically pays actual cash value (a.k.a. ACV,) unless specified otherwise.
- Gap insurance is the coverage that will pay the gap between what the car is worth and what you owe.
Say you bought a brand-new car for $25,000. You still owe $20,000 on your auto loan when the car is totaled in a covered collision. Your collision coverage would pay your lender up to the totaled car's depreciated value — say it's worth $19,000. If you don't have gap insurance, you would have to pay $1,000 out of your own pocket to settle your auto loan on the totaled car. If you have gar insurance, your insurer would help pay the $1,000.
You may want to consider gap insurance if you made less than a 20 percent down payment on your vehicle; if your auto loan is 60 months or longer; or if you're leasing a vehicle. Local agents can find a price that is significantly less because they shop around for the best price, which can sometimes be as little as $20 per year.
Depending on down payment, length of loan/lease, and type of vehicle, the first two or three years is typically when you are most likely to owe more than what insurance will pay for a total loss or theft of your vehicle. Also, negotiations with the lender can fall short when you have bad credit or no credit. The worse the loan terms are; the more likely gap insurance is needed. The GAP benefits are paid directly to your lender/lessor on your behalf.
If you don't already have gap insurance, check with your car insurance company. Most insurers offer this coverage or a variant called loan/lease coverage. ... Therefore, you're likely to save a lot by purchasing gap coverage through your car insurance company.
As good as your GAP loss may include your deductible up to $1,000— any delinquent payments, deferred payments, or fees added to the loan after inception would most likely not be covered. The best time to purchase gap insurance is right when you purchase your vehicle, whether it is from a lender or your car insurance. Unfortunately, accidents can happen within the first 30 days of purchase, and you want to be protected in the event that one does. This potentially makes the time frame critical for having the coverage. Take the time to consider gap insurance and finalize the purchase without procrastinating.
Gap insurance through Orlando Insurance Center is often reasonably priced. A couple of dollars a month can be a huge blessing if you are ever in a major car accident which totals your vehicle. Waiting the thirty days could be a very bad decision.
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