Auto gap insurance, also sometimes known as “totaled insurance” is a form of vehicle coverage that protects the loan amount of your car, SUV, van, or truck, in the case that it should be totaled, so that you will be sure to receive its actual cash value in order to replace it.
This form of coverage is virtually always required when a new car is being purchased, as the value of that vehicle depreciates starting the moment that it is driven out of the dealership. Many leased vehicles also require this coverage, as there is typically a discrepancy between the amount that is still owed on the car and the actual amount that would be paid by an insurance company if that vehicle is totaled. That said, individuals with used vehicles can also benefit from gap insurance.
Consider the following areas where it can be beneficial:
• When a car is traded in for a newer model, but when money was still owed on the first vehicle, as the existing loan would be rolled into the payments for the new car.
• When purchasing a used vehicle for a price that is later determined to have been too high.
• When buying a car with a bad credit history and without the ability to make a down payment, as there will be a higher interest rate.
Gap insurance may not be available or applicable if you purchased your vehicle in cash or if it is older than 8 years, so make sure that you consider its benefits before making the purchase.