Benefits of Gap Coverage
In case you are unfamiliar with the term, gap coverage is auto insurance for people with very large balances left on their car loans. Gap coverage means that if the owner of the car is upside down on their loan, then the loan will be forgiven. The basics of gap coverage are easy to understand, and its benefits are obvious to people with big balances remaining on their car loans.
An example where gap coverage would be appropriate would be if you own a new hybrid, for example, and you purchased it for $28,000. You’ve had it for a while now and its value has naturally depreciated to $20,000, but you still owe $24,000 on the initial loan. There’s a difference of $4,000 between what you owe and the current value of the car. Then something terrible happens to the car – it’s stolen, or completely destroyed by a flash flood, or totaled in a car accident. After paying your deductible, your insurance will pay you the net worth of your car – and you will be left having to pay what’s left over. The difference between what the insurance company paid you and what you still owe on your loan means you are legally obligated to keep on paying for something you may no longer own. That would be an impossible position for many people.
With gap coverage, you will not be responsible for the remaining balance on your loan. Many of the biggest names in auto insurance offer gap coverage as an option. Some won’t however, so before you commit to a car insurance policy be sure to ask if they offer gap coverage first.Like taking out a mortgage or any other big financial commitment, you need to consult with an insurance agent you trust before you do anything. He or she will answer any and all questions to the best of their ability, and you may determine that gap coverage is exactly what you need.