Gap coverage is a form of car insurance that people often purchase when they have new cars or when they have car loans, but do you always need this coverage? There are definitely times when you should have it, but there are also times when you really do not need it. Here are some details about gap coverage that can help you decide when you need it and when you do not.
First Things First: What Is Gap?
"Gap" is a word used in insurance to refer to coverage that fills the gap, which is the difference between the amount you owe on your car and the amount it is actually worth. This difference may not matter right now, but it would matter if you ever totaled your car.
If you ended up in a collision that caused a complete loss of your car, you could end up owing money on your car after settling the accident with the insurance company. This is never a good place to be, though. Why would you want to have to pay more money on a totaled car? This is why you need gap coverage. It covers this particular gap, and while you may never need to use this coverage, you will certainly be happy to have it if you ever need it.
How to Decide If You Need It
The best way to decide whether you need gap coverage is by comparing the amount you owe on your car to the car's current value. If you owe more than what the car is really worth, you should have gap coverage. If you owe less than its value, then you probably do not need gap coverage.
An Example of How Gap Works
Imagine wrecking your car in a way that resulted in a total loss of the car. If you owed $15,000 on the car at the time of the wreck, you would need to pay off the full $15,000 to complete the loan requirements. If the car was worth only $12,000, the insurance company would send a check to your lender for this amount. You would owe the $3,000 balance, though, unless you had gap coverage to pay for this deficit.
If you ever experience an accident, you will have an easier time settling it and replacing or repairing your car if you have the right coverage types. To add coverage or to learn more, speak with an auto insurance agent today.