Gap Coverage Basics
Gap coverage is a special kind of auto insurance, mostly for people who are saddled with large balances on their auto loans – people who have put very little down in terms of a deposit, and are slowly but surely paying off the vast majority of the price of the car. Gap coverage ensures that should the owner of the car get into a situation where theyre paying more for the car than it is worth a situation called “being upside down” on your loan the loan will be forgiven.
How Gap Coverage Works
Let’s say you bought a brand-new car for $30,000. You’ve had it for a while now, and the actual value of the car has depreciated to $22,000, but you still owe $28,000 on the initial loan. There’s a difference of $6,000 between what you owe and the depreciated value of your car. Then something awful happens to the car it’s stolen, completely destroyed in a fire, or damaged beyond repair in a car accident. After paying your auto insurance deductible, your insurance will pay you the net worth of your car – $21,000. And you’re left holding the bag for the difference between what the insurance company paid you and what you still owe on your loan that’s a staggering $7,000 you have to pay off for something you no longer possess. What an infuriating position to find yourself in!
How Gap Coverage Can Save You
With the benefits of gap coverage, you will not be responsible for that remaining $7,000 on your loan. So it’s not really insurance, but rather a kind of debt-cancellation agreement. Some major insurance companies that offer gap coverage include Allstate, Farmer’s, AAA, Nationwide and Progressive. Many others will too and some will not so always be sure to ask before you commit to any particular auto insurance carrier.
As with any major financial commitment, be sure to check with a qualified, reputable insurance agent before you make any decisions on what kind of auto insurance coverage you need.