Gap Insurance is beneficial if you owe more money on a vehicle than it is worth at the time it is stolen or totaled in a car crash. It is sometimes offered as an add-on to your current auto policy, but can also be offered by the car dealer at the time of purchase. This type of insurance can be very helpful, especially when you are purchasing a newer vehicle.
If your current auto insurance company offers it as an add-on you might want to shop around to make sure you are getting the best rate. The cost of gap insurance depends on different factors, but it should usually be less than $100 a year.
Remember to review the terms and deductible of the insurance policy. Request the details of the policy in writing so you can review what is covered and excluded. They may even offer additional coverage, like reimbursing the amount you paid for an extended warranty, but you will need to check to see if it is included or not.
Beware of the gap insurance deductible as it could be higher than your primary insurance deductible. Since you will have to pay both deductibles, you will want to budget accordingly. Gap insurance is only beneficial when you are upside down on your loan. This time period is usually only the first 3 years so long as you didn’t pay much of a down payment.
Additionally important, you should check the policy’s limits. The coverage might pay the difference between the value of the car and the amount you owed. On the other hand, it may be limited to a certain percentage or dollar amount. If you choose a limited policy, remember new cars depreciate by 30% in the first year.