Most people know that they need some type of car insurance to drive legally, but many don't understand the different types of coverage available. One important aspect of car insurance is gap insurance coverage. But what exactly does gap insurance coverage include? Here we will explore the basics of gap insurance and answer some common questions about it.
What is gap insurance?
It’s a type of car insurance coverage that pays out if your car is stolen or totaled and you owe more on the loan than the car is worth. In other words, it covers the "gap" of what you owe on your car loan and the actual value of your vehicle.
Does gap insurance cover entire loan on the car? Yes. For instance, let's say you owe $15,000 on your car loan but your car is worth $12,000. If your car is totaled in an accident, your regular insurance will only pay you $12,000, leaving you with a $3,000 balance on your loan. But if you have gap insurance, the insurance company will pay the $3,000 difference, leaving you debt-free. So, if you have a loan on your car, you should purchase gap insurance.
Types of gap insurance
There are two main types of gap insurance: loan/lease payoff coverage and new car replacement coverage.
- Loan/lease payoff coverage is the more common type of gap insurance. As the name suggests, this type of coverage pays off your car loan if your car is totaled or stolen. So, does gap insurance cover therft? Yes! This type of coverage is typically required if you lease a car.
- New car replacement coverage is less common but can be very beneficial, especially if you have a new car. This type of coverage pays for a new car of the same make and model if your car is totaled or stolen within the early few years of ownership.Gap insurance pays actual cash value.
Some car insurance companies offer gap insurance as an add-on to your regular policy while others sell it as a standalone policy. Whether you buy it from your regular insurer or a separate company, make sure you understand what type of coverage you're getting and that it meets your needs.
Why do I need gap insurance?
If you have a car loan, there's a good chance you're "upside-down" on the loan – that means you owe more than the car is currently worth. This can happen for a number of reasons, including depreciation and negative equity from a previous loan.
If your car is totaled or stolen, your regular auto insurance policy will only pay out the actual value of the vehicle, which may be less than what you owe. Gap insurance covers the difference so you don't have to come up with the money yourself.So, to answer the question: "Does gap insurance cover entire loan?" The answer is yes.
What does gap insurance cover and what doesn't?
Gap insurance typically covers damage caused by events such as accidents, theft, or weather (like hail or floods). Here's the list of what's typically covered:
- Your car is totaled in an accident: During the first few years of ownership, your car depreciates quickly. If you're in an accident and your car is totaled, the gap insurance will cover the difference of what your car is worth and what you owe on the loan.
- Your car is stolen: Like accidents, theft can leave you "upside-down" on your loan. Gap insurance will cover the difference of what you owe and what it's worth.
- Your car is totaled in a weather event: Severe weather can cause major damage to your car. If your car is totaled in a weather event, gap insurance will cover the difference of what you owe and what it's worth.
- You owe more on your loan than the car is currently worth: If you're "upside-down" on your loan, gap insurance will pay the difference between the car's current value and what you owe.
Does gap insurance always pay out?
- Regular wear and tear: Gap insurance only covers damage caused by events like accidents, theft, or weather. It does not cover regular wear and tear.
- Mechanical issues: Gap insurance also does not cover mechanical issues. If your car needs repairs, you'll have to pay for them yourself.
- Damage caused by an uninsured driver: If you're in an accident with an uninsured driver, your gap insurance will not cover the damage. You'll need to file a claim with your own insurance company to get compensated.
Is gap insurance required?
No, gap insurance is not required in most states. However, if you lease your car, your lender may require you to have it.
Do I need gap insurance if I have comprehensive and collision coverage?
Comprehensive and collision coverage will protect your car if it's damaged in an accident, but it will only pay out the actual value of the vehicle. If you're "upside-down" on your loan, you'll still owe money even if your car is totaled. That's where gap insurance comes in.If you want to be covered, you should purchase gap insurance.
How much does gap insurance cost?
The cost of gap insurance varies depending on a number of factors, including the make and model of your vehicle, your deductible, and the length of your loan. However, it is typically a relatively small percentage of your overall car insurance premium.It could be a wise decision for you to buy gap insurance.
Does gap coverage insurance cover windshield replacement?
No, gap insurance does not typically cover windshield replacement. However, some insurers offer additional coverage for glass breakage that can be added to your gap insurance policy. If you live in Florida check the Florida fl widnshield replacement law or Florida broken widnsheild law for gap coverate. If you live in Kenturcky, check the Kentucky windshiled replacment law. If you live in Georgia, check the Georgia windshield replacement law. Whatever state in which you live, check with your car insurance company to see if gap insurance covers windshield replacement and if they don't, search for gap insurance providers online.
Does gap insurance cover death?
No, gap insurance does not cover death
The Bottom Line
Gap insurance is a type of car insurance that covers the difference between what your car is worth and what you owe on your loan in the event of an accident, theft, or weather event. Gap insurance is not required in most states, but it may be required if you lease your car.
The cost of gap insurance varies depending on a number of factors, but it is typically a relatively small percentage of your overall car insurance premium. Gap insurance does not typically cover windshield replacement, but some insurers offer additional coverage for glass breakage that can be added to your gap insurance policy.
