Whether you’re buying a new or used vehicle, there is one thing you need to know – you legally have to have car insurance. There are a lot of questions that come up when researching your insurance options, though, especially when it comes to GAP insurance.
This guide will help you better understand GAP insurance, and hopefully, answer all of your burning questions when you go into the finance department.
What is GAP Insurance?
GAP insurance stands for Guaranteed Asset Protection (GAP) insurance. It’s an insurance option that covers the “gap” between the amount you currently owe on your vehicle and its actual value. This option helps give you peace of mind that you won’t lose any money should your car be totaled, destroyed, or stolen.
Why Do I Need It?
If you’re purchasing or financing a vehicle, lenders typically require you to have both collision and comprehensive coverage. GAP insurance works with these types of coverage. You will find that collision and comprehensive insurance options will usually only pay for your vehicle up to its depreciation value, which rarely matches how much you still owe on your loan. GAP insurance will cover the difference between your car’s actual value is and what you owe if you owe more than the value of your loan.
Depending on your insurer, GAP coverage will vary. It will ensure, though, that you won’t have to pay any money out of pocket if your vehicle is completely totaled or stolen. For instance, let’s say you purchase your vehicle for $25,000, and it gets destroyed when you still owe $20,000 on your loan. Your collision coverage will pay your lender up to your car’s depreciation value. At this point, if this value is less than $20,000, your GAP insurance will pay for that difference. So, if the value is $18,000, GAP will handle the $2,000. If you don’t have GAP insurance, then you will have to pay that difference out of pocket.
How Does It Work?
If you want to learn more about GAP insurance—or want to add it to your current vehicle or next purchase—stop by Hardin County Honda and sit down with one of our financial experts.
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