If you have ever purchased a vehicle, chances are you’ve been offered a chance to buy Gap Insurance, a completely separate coverage from your normal liability coverage. Gap insurance is simple and recommended if you are financing a vehicle and still owe a lot of money in order to pay your vehicle off.
What Gap insurance does is protect you financially. If, for example, you were involved in a car accident that totaled your car and you still owe a substantial amount on it, Gap Insurance would cover the remaining balance you still owe on your vehicle. If you purchase a car on an auto loan with a down payment of less than 20%, it’s highly recommended that you purchase Gap Insurance to protect yourself.
However, buying Gap Insurance from your dealership when you purchase the vehicle is different than Gap coverage that an insurance company will offer you. It is best not to get confused between the two, as you may end up facing financial repercussions down the line.
Gap coverage offered by an auto insurance policy is normally referred to as a “Loan or Lease Payoff.” While it is still referred to as Gap insurance, it is different from what the car dealership offers you. Loan or Lease Payoff will give you an additional 25% of your vehicle’s worth to apply toward the remaining balance of your auto loan in the case of an accident. Unlike the real Gap Insurance your dealership offers you, this Loan or Lease Payoff only covers a certain percentage, which may leave you with a substantial amount of the auto loan you still have to pay.
If you are purchasing a new vehicle and know that you have a significant balance on there, you should consider whether or not Gap Insurance is a good option for you. Chances are, it will pay off down the line. You never know if you’ll be in an accident, especially if you are living in a high-traffic, high-risk accident area like Los Angeles. If your vehicle is considered a total loss, you will still owe the remaining balance on that vehicle even if you can no longer drive it. Gap Insurance will cover the remaining balance so that you no longer have to worry about that loan.
The great thing about Gap Insurance is that if you have already paid off enough of your auto loan and owe less than what it is worth, you can always cancel your Gap Insurance. In some cases, you may even receive a refund amount depending on how much you still owe on your auto loan.
It is always best to talk to an insurance broker regarding any type of insurance to best protect your rights.