Filling in the Gap

Cars are expensive and lose their value quickly. That’s why it might be helpful to look into gap insurance. If your car gets totaled or stolen, gap insurance will pay the difference between what your vehicle is worth and how much you owe on your auto loan. Curious about gap insurance? Below we’ve answered some questions you might have.

What Does Gap Insurance Cover?

Gap insurance covers you when your car is totaled or stolen. If that happens to you, first your comprehensive and collision insurance would kick in. That’s great. But they only pay what your car is worth at the time of the total loss. If you owe more on your loan than that, gap insurance kicks in and covers you.

How Does Gap Insurance Work?

Let’s say that you (unfortunately) just totaled your car which was worth $30,000 and you still owe $35,000 on the loan. You pay your $500 deductible and your insurance pays your lender $25,000. If you don’t have gap insurance, you’d be on the hook for the remaining $5,000. If you have gap insurance, you’d only have to pay a small deductible.

Should I Get Gap Insurance?

You don’t need gap insurance unless you lease a vehicle or have an auto loan. You don’t need it if you owe less on your loan than the value of your car. You should also consider your driving history and the chances that your car will get stolen or totaled. In general, those events are quite rare.

Do One Thing: If you do decide to get gap insurance, make a note to drop it once you owe less on your loan than the value of your car.