Insurance
Purchasing a used vehicle is a great way to save money, but you should still make sure you’re adequately protected. Gap insurance is one way to do this. Here, we’ll explain exactly what gap insurance is and how it can help you if you purchase a used car.
What Is Gap Insurance?
Gap insurance, also known as guaranteed auto protection, is a type of insurance coverage that helps cover the difference between what you owe on a leased or financed vehicle and the vehicle’s actual cash value in the event that it is stolen or totaled in an accident. This coverage can be beneficial if the vehicle’s value drops significantly before the loan is paid off.
How Does Gap Insurance Work?
The first step to understanding gap insurance is to understand the difference between the actual cash value (ACV) of a vehicle and the loan balance. The ACV is the current market value of the vehicle, which is determined by factors such as age, mileage, and condition. The loan balance, on the other hand, is the amount you owe on the vehicle, which is established when you finance the vehicle and make payments over the term of the loan.
Gap insurance is designed to cover the difference between the loan balance and the ACV if the vehicle is totaled or stolen. In other words, if the ACV of the vehicle is less than the loan balance, the difference is covered by the gap insurance policy.
Should You Buy Gap Insurance for Used Cars?
Gap insurance can be beneficial if you purchase a used car and don’t have the cash to pay it off immediately. This type of coverage can also be helpful if you’re leasing a car and don’t want to be stuck with a large loan balance that exceeds the vehicle’s value if it’s stolen or totaled. It’s also important to note that some lenders may require gap insurance if you purchase a used vehicle.
How Much Does Gap Insurance Cost?
The cost of gap insurance will vary depending on your location, the type of vehicle you purchase, and the type of coverage you choose. Generally speaking, gap insurance is more affordable than other types of auto insurance, but the cost can still add up over time. That’s why it’s important to shop around and compare quotes before making a final decision.
Where Can You Buy Gap Insurance?
Gap insurance can be purchased through most major auto insurance companies or through your car dealership. It’s important to compare different providers and read the details of the coverage before you purchase a policy. You should also make sure that the policy is valid in your state, as some states may not allow gap insurance.
The Bottom Line
Gap insurance can be beneficial for those who purchase used cars, as it can help protect you from being stuck with a large loan balance if the vehicle is totaled or stolen. It’s important to consider all of your options and compare quotes before purchasing a policy, as the cost of gap insurance can add up over time.
Takeaway
Gap insurance can provide peace of mind if you purchase a used car. It’s important to compare policies and understand the coverage before you purchase a policy, as this type of insurance can protect you from being stuck with a large loan balance if the vehicle is stolen or totaled.