What Is Gap Insurance for Cars?
Gap, or guaranteed asset protection, insurance is designed to help drivers cover the difference between the amount dispersed from their insurer and the amount left on their auto loan in the event of a total loss of a vehicle. In most cases, gap insurance isn’t required by law (but can be by a lender) but offers valuable protection to policyholders with leased vehicles.
Gap Insurance Explained
Here’s how it works: if your insured vehicle is totaled in an accident and you aren’t found at fault or your vehicle is stolen and unrecovered by law enforcement, your settlement will usually be based on your vehicle’s actual cash value (ACV). Vehicles depreciate quickly over time, so a brand-new car purchased two years ago would typically be worth a couple of thousand dollars less if you were looking to bring it to a dealer to trade it in. With this in mind, if you purchase a $25,000 vehicle that’s totaled and have $20,000 still owed to the lender, the ACV of the car could be $15,000. With a $500 deductible, your insurance settlement amounts to $14,500—which isn’t enough to pay off the vehicle. With gap insurance coverage, the policyholder may not have to pay the remaining $5,500 completely out of pocket.
What Does Gap Insurance Cover?
Gap insurance provides protection solely for the vehicle. This coverage does not extend to bodily injuries, lost wages, medical bills, or other damaged property resulting from an auto accident. This coverage can aid drivers with stolen or totaled vehicles and help people cover negative equity related to an auto loan.
Do I Actually Need Gap Insurance?
Though you may think that enrolling in a policy that meets legal requirements is all the protection you need, gap insurance may be beneficial if any of the following circumstances apply to you:
- Your car is leased
- You plan to put in a lot of miles on your new car
- You opted for a lengthy loan term (above 60 months)
Is a new set of wheels in your future? Speak to the team at RG Insurance Agency to make sure that your auto insurance policy adequately protects your investment and get all of your questions about gap insurance answered. Request a quote today to work with our agents in the Pharr, TX area to find the perfect policy for you.