Many people find themselves in a terrible situation, still owing a large amount of money for a car they no longer have because it was stolen or damaged beyond repair. Even after the insurance company has settled.
Here is how it happens. You are driving a brand new car that is not fully paid for because you are making your monthly payments and then it gets stolen or you are involved in some accident that totals it. Naturally you already have car insurance cover for it but what most people do not realize until it is too late is that the insurance company will pay only the value of the car. New cars lose value very fast the minute they are driven out of the showroom and the insurance company valuation will always mean the settlement will leave you with several thousand dollars that you will have to pay out of your pocket to the car loans company and you will have to come up with the money.
This is precisely why it makes a lot of sense to go for gap insurance in addition to your usual car insurance. As the name suggests this is the insurance that covers that gap that could end up giving you many sleepless nights in the event that something goes wrong before you finish paying off for your car.
Gap insurance is vital when it comes to leasing. You just can’t do without it. In fact many lease contracts include it or there is a requirement that you get your own gap insurance to validate the contract. In this case you should shop around for the best deal you can get from car insurance companies. Where Gap insurance is included in the lease it is advisable that you carefully read the small print and find out how much premium you will be paying for it.
You should also be aware of the fact that in some rare cases a car lease will include what is known as a gap waiver. This waiver will protect you from any extra charges in the event that the car is damaged or stolen before you have fully paid for it. Naturally in this case you will not need any Gap insurance cover.
Gap insurance is also a wise move for people who have financed the purchase of their cars on their own. Especially if you purchase a very pricey car and would like to be able to replace it immediately in the event that anything happens to it.
It is important to note that your Gap insurance claim may not be honored if you do not have a comprehensive insurance policy that includes collision coverage. Actually most lease contracts will demand collision and comprehensive coverage of the car through the period of the contract.
You will also need to be careful to follow all the requirements of the insurance company for the gap policy. For instance some insurance company contracts will require that you continue with your monthly car payments until the gap insurance is paid. You need to be very careful about these small details to avoid being disqualified on some technicality.
Gap insurance is the kind of wise decision that you will be delighted you took in the event of some unexpected misfortune along the way.
About the author:
Victor is an experienced personal car finance expert. He writes for several blogs on this topic as well as other financial and automotive issues.