A form of automobile coverage that is often overlooked is GAP insurance. GAP insurance stands for guaranteed auto protection. This type of insurance helps protect a vehicle owner from paying for a vehicle that is rendered useless, or considered a total loss while they are still paying it off.
In other words, if your vehicle is totaled beyond repair while you are still financing it, you are responsible for paying off the remaining balance. Provided that you have adequate coverage, your insurance company will reimburse you for the value of the vehicle. This helps drivers that still owe money on their vehicle to pay it off. It also helps a driver that has paid off his or her vehicle in full have money to use as a down payment for a new one.
What happens if you owe more than your insurance company compensates you for? Well if that’s the case then you are going to have to pay off the remaining balance on your own. Luckily GAP insurance was created to help drivers in this very situation.
How GAP insurance works
GAP insurance helps protect drivers from having to pay for a vehicle they can no longer drive. Let’s say Jane Tracker bought a brand new vehicle for $20,000. She drove the car for one year before she got in an accident and totaled it. In that one year, she was able to pay off $3,000 of the vehicle’s value. So she only owed $17,000 after the accident. Since she had adequate coverage, her insurance company decided to reimburse her for the value of the vehicle.
The insurance company determined that the car was worth $15,000 and reimbursed her for that amount, which meant the remaining balance was $17,000. That means after you subtract the $15,000 compensated to her from the $17,000 balance, Jane would still owe $2,000. That is money she would have to pay out of her pocket. Jane would still have to make monthly payments for a vehicle she no longer drives until the remaining balance is zero.
However, if Jane had GAP insurance, the difference of the $2,000 would be paid for. Instead of paying monthly payments for a vehicle Jane does not own, GAP insurance would pay off her remaining balance. GAP insurance can help a driver save thousands in the event the car is totaled and is worth less than the value of the remaining balance.
GAP insurance is relatively inexpensive. Contact your insurance provider to get a quote today. According to Esurance, GAP insurance typically costs only a few extra dollars a month for coverage. A small fee each month might be worth the investment, considering it can prevent you from paying for a vehicle that you no longer drive.