If you own a new car or are leasing one, gap car insurance is a must-have. As its name suggests, gap insurance fills in where your traditional auto insurance leaves off. If your new or rental car is stolen or in an accident, gap insurance would pay the difference between what your auto insurance covers and what you owe the finance company.
So what is gap car insurance and how does it work? Because cars lose much of their value by the time you drive them off the lot, it’s unlikely your auto insurance company will cover the full amount you owe on the loan or lease. For example, if you bought a car for $20,000 a couple of months ago and added it up, your insurance company would likely value the car at only $15,000.
That leaves a $5,000 gap you owe the car company that comes right out of your pocket. Owing more than your car is worth is common if you have recently leased a car or bought a car with a low down payment. This is where gap insurance can save you a lot of money.
Gap insurance is often required when you lease a car and is usually included in your lease. If you must provide gap insurance and it’s not already in your contract, be sure to shop around for coverage, as there can be big differences between insurers.
While gap insurance is most commonly obtained at the beginning of a car lease or when you first buy a car, some insurance companies will sell you a gap policy at any time. You’ll need to maintain collision and comprehensive insurance coverage along with your auto differential insurance. Your gap policy may not be honored if you do not have this coverage in force.