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What is Gap Insurance on a Used Car?

by Carmen PickelJune 21, 2021,
What is Gap Insurance on a Used Car?

When you finance a preowned or even new vehicle, the lender or bank give you the money for buying that car in exchange for fixed agreed-upon monthly payments. If your vehicle is totaled and its value doesn’t cover what's left of this loan, then it could be time for you to pay off whatever balance remains out of pocket.

Gap protection insurance is a must-have for any new car owner. With this coverage, you will be equipped to handle the unfortunate event of total loss with little or no personal cost. It's also possible to combine gap cover with comprehensive and collision policies from most auto insurance companies! 

How Gap Insurance Works

When it comes to cars, one of the most important things is understanding how they depreciate in value. Let's say you're someone who just bought a late-model pre-owned vehicle last year on finance and had an accident. If your insurance company says that car was only worth $13,000 then gap insurance would cover the difference for their lender up to $2000; otherwise, you will have to come up with the cash yourself

Generally, insurance companies total your car when repairing it would cost more than 75% of the value. If you have comprehensive and collision coverage on a $10,000 vehicle that is totaled in an accident -you get nearly enough moeny to buy a new one.

Insurers use sources such as Kelley Blue Book and the NADA Valuation System to decide if your car is a total loss, but how they come up with that conclusion differs from company to company. If you disagree with their determination of what your vehicle's cash value should be because it doesn't match up with other dealerships' assessments or even an independent appraisal done on behalf of one party by another in good faith (meaning not just someone who wants more for themselves), then you may need legal assistance afterward to help get satisfaction.

When it comes to leasing a car, you may be interested in gap coverage. This is because if the vehicle's value falls below what they owe on their lease contract after an accident or natural disaster, then this type of insurance pays for the difference.

FAQ’s

How much is gap insurance monthly?

GAP coverage is a great way to protect your car purchase, especially when you are financing it. We found that the average cost of GAP protection ranges from $400-900 for one single payment which can be added on top of your loan. Saving hundreds in this manner makes sense if you want peace of mind as well as security and stability for yourself and those who depend on you!

Can Gap insurance refuse to pay?

If you're buying a new car, don't be fooled into getting gap insurance from the dealership or your loan officer. In most cases, there's no legal requirement for it and if they ask about it just tell them that you refuse to buy any more auto warranties!

How long is Gap Insurance Good For?

One to two years.

Gap insurance is usually required for 1 to 2 years since it is useless when a car is worth somehow more than the loan balance. Gap insurance pays for the difference between aloan or lease balance of a car and its actual cash value if it becomes declared as a total loss type of thingy.

How much does gap insurance usually cover?

Gap insurance covers the difference between what is the worth of your car and what you owe for on your car after accounting for deductibles. Also upto certain amount of money, some policies also cover the deductible.

Can you pay gap insurance monthly?

With GAP insurance, you can usually pay your premiums in monthly installments or get a refund when the 36 months are up.

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