How does GAP Insurance work? As a relatively new insurance product to most people, many often ask this question. First, one of biggest downsides to purchasing a new vehicle is depreciation. Research suggests the average vehicle depreciates by 11% the minute you drive off the lot and an additional 14% by the end of the first year. So how does that compare to your loan balance? When you factor in long term loans, low to no down payments, and all the dealer’s fees and interest loaded into the loan, you can owe significantly more than your vehicle is worth.
So, what happens if your vehicle is a total loss before the loan obligations are complete? The amount your car insurance provider pays on your totaled car, SUV, or truck has nothing to do with your loan balance. They will pay you a predetermined book value and you will be responsible for the remaining loan balance.
How GAP insurance works is by paying you the difference between your insurer’s settlement and your remaining loan balance. It is an add-on car insurance coverage that can help vehicle owners cover the “gap” between the amount they owe on their car and the car’s actual cash value in the event of fire, theft, or accident. If you’re financing a vehicle for a dollar amount that’s larger than what the vehicle is worth, GAP insurance can be a very good idea to protect yourself financially.
Obvi GAP insurance allows you to finance your vehicle with peace of mind knowing that your loan obligations are covered in the event of a total loss. It pays the difference between your insurer’s settlement and your loan balance, up to a maximum of $40,000. Get a free instant quote today and protect yourself against financial hardship tomorrow.