An active auto insurance policy will incorporate a number of basic elements but there will still be a number of optional additions that can be factored into all auto insurance quotes. GAP insurance is a feature that is of particular importance to owners of new or nearly-new vehicles as well as those who are using leased cars.
GAP Insurance Explained
Gap insurance effectively pays the difference in the value of your car if it is declared a total loss and any outstanding payments due to the finance company that loaned the money for the purchase or lease of the vehicle in the first instance. As an example, you may have purchased your vehicle for $25,000 at an interest rate of 6% and monthly payments of $500 per month. Let us imagine a disastrous situation; a tree outside your home falls during high winds and causes irreparable damage to your car.
Once you contact your insurance company, underwriters will provide a value to your vehicle which will include an allowance for depreciation. If the underwriter declares your vehicle to be worth $20,000 and you still owe your finance company $27,000 including interest, you still have a shortfall of $7,000 to contend with. GAP insurance is purchased as a means of filling this void.
Generally, GAP insurance is included within any policy mandated by lease contracts but it is highly advisable to consider this useful add-on when comparing auto insurance quotes if you’re vehicle still has outstanding payments secured upon it. Pay attention not to purchase GAP insurance if your policy already includes provisions to pay off any outstanding balances as a standard feature.