Like many things in life, gap insurance is one of those things that is important to know about before you need it. Gap insurance is also commonly referred to as auto loan/lease coverage.
To answer all your questions about this important coverage, we talked with our auto underwriting team for insights.
What is gap insurance?
What's an example of how gap insurance works?
What is the most gap insurance will pay?
Who might need gap insurance?
How can I buy gap insurance?
1. What is gap insurance?
Gap insurance (or auto loan/lease coverage) is an additional coverage you can add to your car insurance policy. It covers the remaining loan or lease amount you may have on your vehicle if it’s totaled in a covered accident.
So, if your car is damaged in an accident and your insurance company deems it a total loss, your insurance company will pay off your remaining loan balance rather than just the current value of your vehicle considering age, condition and mileage. This loss of value over time is called depreciation.
Without this coverage, you would be responsible for the “gap” (hence its name) between what’s left on your loan and your vehicle’s current, depreciated value.
For example, if your vehicle is totaled in a covered accident, your insurance company will provide you with a claim payout equal to your vehicle’s depreciated value (less any deductible). Depending on the amount of your loan and the depreciation on your specific vehicle, the amount your insurance company pays you may be less than the amount left on your loan. This leaves you having to pay that remaining amount. However, with gap insurance, your insurance company would pay the remaining loan amount.
Continue reading at Auto-Owners Insurance here