Purchasing a new car is an investment, and you want to protect yourself against loss by getting auto gap insurance. Its purpose is to pay off your loan in the event your vehicle is totaled, but what else can it do? Furthermore, what isn’t covered by auto gap insurance? Here is an overview of what you’re getting for your money.
What’s Covered
The basic use of gap insurance is to cover your loan if your car is totaled. The reason for this is because when you purchase a new car, it’s already depreciated by the time you drive it off the lot. It can reduce as much as 11% in value and after the first year, it can depreciate as much as 25%.
When you get in a car accident, your current auto insurance pays for the current value of your vehicle. Unfortunately, this won’t equal what’s left on your loan, potentially leaving you to pay off thousands on a car you can no longer drive. Gap insurance pays for the amount remaining on your loan so you’re not responsible. It’s important to read your policy to discover how much your gap insurance pays. Not every plan is the same.
Shop around if you’re considering gap insurance because there are several other benefits you can get. While some policies only cover your vehicle, you may be able to get a replacement of the same make and model. Another advantage may be getting a rental car while your claim is being processed.
What Isn’t Covered
If you get in a car accident, and your vehicle is totaled, don’t expect your gap insurance to pay for past due payments. You must be current on your payments. Additionally, if you are unable to make payments for any other reason other than your vehicle being totaled, gap insurance will not pay. This includes loss of job, disability, and any other reason you’re unable to make payments. If your vehicle is repossessed, gap insurance will not pay for your loan. Finally, if your insurance company decides that your vehicle isn’t totaled, you gap insurance will not pay for a rental while your car is in the shop.
All in all, it’s important to read your policy. Companies are careful to outline what you can and cannot get out of your insurance. Carefully reading through your terms and conditions is the only way to discover what you will get out of your gap insurance.
