There are many additional things you can add to your auto insurance. Often, these things are not well known to the public so it can be difficult to know whether or not you really need the additional coverage. One of these things is gap insurance. But what exactly is it and is it something you really need?
What Is Auto Gap Insurance?
Auto gap insurance is really a very simple concept. This kind of insurance covers the difference between the value of your car and what you still owe on it. When you purchase your car, the loan does not just cover the full value of the vehicle. Included in the loan is the interest on the loan that you will pay over the lifetime of it. That means that the loan likely covers more than the value of the vehicle. However, when you insure your car, you are insuring the value, not the loan amount. If for some reason the vehicle is stolen or destroyed, your insurance will pay for the value of the car but not the remaining balance on the loan for interest charges. What is left is referred to as the gap and that amount is what is covered by gap insurance.
Do You Really Need Gap Insurance?
For some auto owners, gap insurance is a good idea. However, if you are almost done paying your auto loan, it might not be the best add-on for you. Also, if you own the vehicle outright and you no longer have a loan payment on the vehicle, you definitely do not need gap insurance. If you put down a large down payment when you purchase your vehicle, it also may not be something you need. Something to keep in mind is that if you lease your vehicle instead of purchasing it, you may be required to purchase gap insurance. Many auto dealers offer gap insurance when purchasing but you do not have to make the decision when you are at the auto lot. You can also purchase gap insurance with your auto insurance policy. It is smart to look at the depreciation rate of the vehicle and how fast you are paying down the interest. Gap insurance is not right for everyone but in a lot of cases, it makes sense. Hopefully you never have to use it but you may find that it was a good buy if you run into an unfortunate situation with your vehicle.