What you need to know about GAP insurance.
Car owners often assume that if their car is totaled, it will be replaced at the amount they paid, or at least the amount they owe, by their car insurance company. This is not always so.
Most car insurance policies will pay only up to the actual cash value of the car — what it was worth right before the accident. That will almost certainly be less than you paid, and in many cases it can be less than you owe. Negative equity has become more common as auto loans have lengthened to 60 months, 72 months and even longer. Cars depreciate more rapidly than the loan balance shrinks, leaving owners “upside down” in their cars — and on the hook if the car is totaled.
Many car insurance companies offer gap insurance (sometimes called loan/lease gap, or LLG) so that if you have negative equity in your vehicle when it is totaled, you’re not left owing money to your lien holder. Many car dealers and banks will offer you the coverage as well, but it’s typically much cheaper to buy it from your insurance company.
Gap insurance isn’t required by law. Lenders will usually require gap insurance on their lease contracts, but it’s less common for them to ask for it on loans. The dealer cannot require it (unless, of course, it is also the lender.)
Buy gap insurance if you have a long loan or a small down payment. If you have both, it’s an absolute must.
If you are thinking about leasing a new car, you may be surprised to know that your car insurance will not be the same as when you purchase a car with a car loan. Not only will your registration reflect the bank as the owner of your leased car, but you may be required to obtain GAP insurance, also called GAP coverage. Before you lease your car, it is a good idea to get an online quote for Florida affordable car insurance. This way, you will be able to review the different policies and prices available to you in order to choose the best option to fit your needs and your wallet.
GAP insurance is fairly new. It was created in the early 1980s to protect customers who lease a new car. Right after a car is purchased there is a sharp decline in its value. This means if the car is in an accident, the loan or lease amount of the car actually exceeds the car value. This means that the owner could owe hundreds or even thousands of dollars on the loan for a car that was damaged beyond repair. GAP insurance is protection for customers during this time when their loan is more than what the vehicle is worth. In the majority of situations, GAP insurance will also pay the deductible on the primary insurance policy. GAP insurance is an add-on to regular auto insurance.
It is also important to note that when Florida affordable car insurance includes GAP insurance, it may not include any unpaid or delinquent insurance premium payments, extensions or payment deferrals, refinancing, or any late fees or administrative costs. The car owner will be required to pay those back out of their pocket. As you can see, GAP insurance isn’t a cure-all, but it will help in the event your newly leased car is totaled in an accident.