When it comes to buying a car, you have myriad options, from moon roofs to floor mats and everything in between. And your options don’t end on the showroom floor either. Once you’ve selected the perfect color, interior, and extras, you’ll have financing and warranty options to consider. And if that’s not enough to set your brain reeling, you’ll also have a choice on your gap coverage.
Gap coverage? Though this type of insurance coverage could have a very big impact on your future finances, you may not know much about it. Not to worry. Though we can’t help you decide between cup holders and custom rims, we can help you to fully understand gap insurance.
The gist of gap insurance
Due to depreciation, you may owe more on your car than it’s worth, which we in the insurance world call being “upside down.” And it’s not a good place to be.
If you total your car or it’s stolen, your insurance company will pay you its current market value (which we call its actual cash value); let’s say $20,000 for example. Unfortunately, if you still owe $25,000 on the car and have a $500 deductible on comprehensive and collision coverage, that payout leaves $5,500 unaccounted for. Well, not unaccounted for, because it’s going to have to come out of your pocket.
Unless you have gap coverage. Never heard of it? No worries: You can learn everything you need to know about gap insurance (and auto loan/lease coverage) in our insight,
“Gap insurance: what it is and why you (might) need it.”