Say you still owe money on your vehicle’s financing loan, and you get in an accident near DeWitt, leaving the vehicle totaled. Insurance will write you a check for the value of the car, but what happens if it isn’t enough to pay off the rest of your loan? You’re on the hook to pay the remaining balance.
That’s where gap insurance comes in. With gap insurance for a financed vehicle or a lease, if the worst happens and your car is totaled with money left on the loan or contract, gap insurance pays off the difference to the lender or financial institution. Seem a bit confusing? Let’s dive into why you may want or need gap insurance, what it covers and what it doesn’t, and other common questions to help you decide if gap insurance coverage is right for you and your vehicle.
When You Want Gap Insurance
The most likely scenario you’d want gap insurance, or may be required to have it, is when you’re leasing a new vehicle. Cars depreciate in value over time, and leases factor this into your contract to determine your monthly payments. As such, the total value you’d need to pay will usually exceed what the hypothetically totaled car would be worth. In this case, for your benefit and for the dealership/auto loan lender, gap insurance can help save the day if an accident occurs.
If you aren’t fronting a larger down payment on a new vehicle, gap insurance may be your friend. While cars depreciate in value, the bulk of depreciation hits within the first year of driving off the DeWitt, IA, dealership lot. With so much of the car’s value being in the loan, an accident means that you likely won’t get enough coverage from insurance in the case of a totaled vehicle without gap insurance.
Similarly to the above point, if you choose a longer financing agreement to lower the upfront cost necessary to get your new car, truck, or SUV, an accident will leave you in a similar position. Gap insurance is recommended in these instances.
Lastly, some vehicles may drop in value more quickly than others, though your financing terms will still be in place. In this event, gap insurance is recommended should you get into an accident and wind up with a totaled vehicle.
What Does Gap Insurance Cover?
Like we mentioned earlier, gap insurance covers the remaining difference between what you owe for an auto financing loan and what the actual vehicle value is at the time of a total-loss accident. This is the only function of gap insurance. Some people have mistaken gap insurance as a way to help afford a new vehicle, but since it is paid directly to the loan institution to cover any losses for depreciation vs. the remaining loan amount, you won’t see anything from that.
If you wanted to plan ahead in the event of an accident where your new car is totaled, you can look into new car replacement insurance/coverage. Speak with your insurance company to learn more about car replacement insurance.
Where To Get Gap Insurance
Gap insurance is easier to get than you may think. You can either get it from the dealership’s finance center when you purchase a new vehicle, or you can contact your insurance provider afterwards and get it through them.
Can I Get Gap Insurance After Buying a New Car?
If you start having second thoughts about your coverage plans after passing on gap insurance from the DeWitt dealership, you may be able to get gap insurance through your insurance provider.
Do I Have to Get Gap Insurance?
Technically speaking, unless required in your leasing contract, no, you don’t need gap insurance. It does, however, offer an extra layer of financial protection, so you aren’t stuck paying the loan difference. It’s up to you to decide if the peace of mind is worth it.
What Are the Basics of Gap Insurance?
Gap insurance is an extra blanket of protection for vehicles valued up to $125,000 with a maximum loan length of 84 months. While typically seen for new vehicles, some used vehicles are eligible for gap insurance.
Explore New Chevy GMC Vehicles Today
Looking to purchase a new or pre-owned vehicle, and wondering whether gap insurance is right for your investment? Visit Ed Morse Chevy GMC to explore our full lineup of Chevrolet and GMC vehicles to find the perfect one for your needs and budget. Our team will be happy to go over gap insurance more in-depth with you and to help you pick the right coverage for your purchase. Contact us today to schedule a test drive and to speak with a representative about gap insurance.
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