Do You Need Gap Insurance?
Posted on: 3 July 2018
If you are not overly familiar with car insurance terms, there is a chance you may not have enough coverage on your car, or you might have too much coverage. It can be hard to understand all the different terms used in car insurance, but you should try to understand them so that you can have the right coverages. One such term you might not fully understand is gap insurance, and here are a few things to know about this.
Gap Insurance Covers the Gap
The first thing you should understand is what gap insurance even is. Gap insurance is a unique type of coverage you can get for your car, and its main purpose is to cover the gap that can exist between your current car loan balance and the fair market value of your car.
For example, if you wreck your car, you may need gap insurance. If your car is currently worth $18,000 and you owe $22,000 on it, there is a $4,000 deficit that will not be covered if you wreck the car to a point where it is totaled. Your insurance company would only cover $18,000 of it, simply because that is what the car is worth. This would leave you with a $4,000 balance on a car you cannot even drive or use in any way.
Gap Insurance Is Necessary for Cars with Loans
Because of the nature of gap insurance, this type of insurance is recommended for anyone who has a loan on their car, unless the loan amount is incredibly small compared to the value of the car. Gap insurance is especially vital for people who purchase new cars, simply because a new car will depreciate very quickly during the first year or two. If you have a new car and wreck it right away, you may have a huge gap between the amount you owe and the value of the car.
Gap Insurance Sometimes Comes with Loans
Before you rush to purchase gap insurance for your car, you may want to find out if your car lender already offers it. There are some car loan lenders that include gap coverage with their loans, and these lenders primarily do this to protect themselves; however, it also protects the owners of the cars.
Understanding the world of insurance is not always easy, but it is important if you want to make sure you have all the right coverages on the car that you own. You can learn more by contacting an insurance company such as Kesner Insurance Agency Inc.
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