Gap insurance can be considered as additional insurance for your car loan. Gap insurance is not mandatory. It is an optional insurance benefit. It serves as a supplement to an auto insurance policy in case a car is totaled or stolen.
The value of a car decreases from the moment it leaves the lot, and it continues to decrease with each passing year. Car insurance pays out the value of the car at the time of an accident or theft. In the event that you still owe money on the car and the insurance paid out is less than the amount owed, gap insurance covers the gap between what is still owed on the car loan and what is paid out by the insurance company.
Is gap insurance worth it?
The term gap insurance stands for guaranteed asset protection. In the event that your debt on your vehicle is higher than the value of the vehicle, gap insurance is a good investment.
If your down payment on a car is less than 20% of the value of the vehicle, it’s best to get gap insurance. At least for the first few years, you own a car.
Gap insurance is usually only required for one to two years. This is because the insurance has served its purpose during this period.
Gap insurance is needed even if you have full auto coverage and you still owe money on a car loan or on a lease. Bear in mind, comprehensive and collision insurance only pays the value of the car at the time of an accident or when it is stolen.
Speak to an expert at Biddle-Shaw Insurance Services Inc. serving San Francisco, CA, to see which insurance options best suit you.