How Does Gap Insurance Work?

More and more people feel the need to understand on how their insurance policy works. It is always better to equip oneself with the right knowledge on insurance policy so that you know how to handle each situation concerning vehicle accidents, filing a claim and other things related to auto insurance. There are many things that are unclear to policyholders and unfortunately, there are many policyholders that will not mind what they have as long as they are covered and meet the state requirement.

One of the most important factor that an insured failed to understand is how the gap insurance works. Some people will mistakenly think of it as additional auto insurance. Yes, gap insurance will still cover your vehicle in the event of covered loss or if the vehicle is totaled. Gap insurance is the difference between the actual cost of the vehicle and remaining amount that you still owed to the financing company during the time when the car has been stolen or totaled. The insured no longer has to shell out to pay the financed company the difference but rather it will be covered by the gap insurance. Now, if collision policy will apply on the covered loss then deductible will then be applied before using the gap insurance. This means that the insured will then shell out money for the deductible. Usually, gap insurance is handled by the financing company, but if you are not sure about this you can check it on one of the documents that you signed with your dealer.

Since gap insurance is an additional expense, a buyer should then need to make sure that they are doing the right decision in buying the gap insurance. Buying gap insurance only makes sense if the cost of the loan is higher than the actual cost of the vehicle after quite some time. This may be because of a low down payment that you made, a high interest rate, if the car that you bought will rapidly depreciate and will have a lower value in just few years, or in cases of rolled-over in trade-ins. A buyer should be able to do the math to make sure that they are doing the right thing. If you need assistance regarding gap insurance, you may approach your dealer so can be able to discuss this matter with him/her. Gap insurance may be very helpful to the insured provided that you in the right circumstance.