Auto gap coverage is an insurance policy that is designed to cover the difference between the amount a vehicle is worth and the balance owed. If your car is totaled, gap insurance will give you enough money to pay back the loan in full.
How Auto Gap Coverage Works
The value of the car is a moving target. The more you drive a car, the less valuable it becomes. This is especially true for new cars.
If you get into an accident and the car is totaled, your auto insurance would pay you based on how much the car was worth right before the crash. However, when you purchased the car, it was worth a different amount. If you took out a loan in order to pay for the car, you will only be paid part of what you still owe. It would be up to you to make up the difference.
That's where the auto gap coverage comes in. It will cover the difference between the money you owe and the money you get back from your auto insurance company. The policy usually applies to accidents only, but, depending on where you live, you may be able to find a gap insurance policy that would cover you if your vehicle was stolen or damaged during a natural disaster. Most of the time, it won't cover you if the accident was your fault.
Finding the Right Coverage
You can usually get auto gap coverage from either the dealership where you bought the car or from your auto insurance provider. You may also be able to shop around and look at other lenders. When choosing a policy, be sure to check if it has any limitations and additional fees. You should also ask the insurance provider about the value of the vehicle and the replacement costs.