Why is gap insurance seen as a safety net for your finances? Put simply, it keeps you from going broke if something bad happens to your car. For instance, let's say you bought a new car three months ago with a car loan and regular car insurance. The car costs $30,000, and you've already put down three monthly payments of $900. Then, disaster strikes. Your car gets hit by a fallen electric post. Half of the car's height was taken away.
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Why is gap insurance seen as a safety net for your finances? Put simply, it keeps you from going broke if something bad happens to your car. For instance, let's say you bought a new car three months ago with a car loan and regular car insurance. The car costs $30,000, and you've already put down three monthly payments of $900. Then, disaster strikes. Your car gets hit by a fallen electric post. Half of the car's height was taken away.
You told the auto insurance company right away, and they played around with numbers, mileage, depreciation, market values, and other things that are related. After a few days, the adjuster tells you that your car was worth $25,000 at the time of the accident. This is how much money your car insurance company will give you. But the company that gave you the loan will still think the car is worth what it was originally sold for. They also mess around with numbers, interest rates, taxes, and licence fees. Then they decide on the number $38,000. This is how much you have to give them. If the auto insurance company gives you the $25,000, where will you get the remaining $7,000? Even though your car is a wreck, you still have to pay the finance company.
If you have a gap insurance, you won't have to face such a tough choice. With gap insurance, you don't have to worry about the difference between what your regular car insurance covers and what you still owe the car loan company. This difference is called a "gap," and gap insurance fills it in so you don't have to worry about finding more money.
A gap insurance must also be part of a car lease contract. It is a safety feature that keeps you from spending all of your money. Some car-leasing companies don't offer gap insurance. This is fine as long as their lease agreement has a "gap waiver." This waiver says that you no longer have to pay any gap charges if your leased car gets damaged.
When you get gap insurance, you should find out how much it covers. You should also know how much your monthly bill will go up. For a gap insurance to be valid, it needs to be paired with a full insurance policy that covers collision.
Sometimes, you might not need gap insurance if the terms of your regular auto insurance policy say that the company will pay off the full amount you still owe on your car loan.
