Today, many people are unaware of gap insurance. This type of insurance is offered mostly when you buy your vehicle on loans or get a vehicle on lease. It helps the insurance buyer not to incur extra expenses when their vehicle gets totaled (cannot be repaired). But as with all the other types of insurance, gap insurance is not required for every insurance buyer.
Unfortunately, many customers don’t know if it is really required or not and end up paying more money without knowing the actual need of it.
Gap insurance is required for a buyer who cannot afford the down payment for a leased vehicle or new vehicle purchase. It provides the coverage between how much you owe on your vehicle and how much the vehicle is worth. That means, it pays the difference in amount of money what you owe on the vehicle and what your vehicle is worth.
Gap Insurance – for leased vehicle
Generally, in lease agreement, buyer is financially responsible for the leased vehicle even though the vehicle is owned by the dealership. Your leasing company may offer you insurance that cover the depreciated market value at the time of collision. Usually, the market value of the leased vehicle is much lower than what is still owed in the lease contract. But, you are responsible for the difference amount of what the insurance company will pay and what you owe. So, gap insurance may help you out in paying the difference amount.
When purchased vehicle on loan
Suppose you purchased a vehicle on loan and hardly paid only one installment. After a month, your vehicle suddenly met with an accident and got totaled. So, even if you take full coverage, which includes comprehensive and collision, you will receive only the market value of the car. That is, it can be 20%-30% less than the purchase price. So, you need to pay 2%-30% of the amount from your pocket. So, gap insurance helps you in paying that amount.
Remember, some of the leasing companies include gap insurance or loan/lease payoff coverage in their contracts. So, make sure you read your contract before you purchase it from your auto insurance company.