Gap insurance usually covers the amount still owed on your loan or lease after your insurance pays your totaled vehicle’s actual cash value. If your insurance covers $30,000 for your totaled vehicle, but you still owe $4,000 on the loan or lease afterward, gap insurance will cover the $4,000 remaining balance.
How Much Gap Insurance Will Cover
The limit to how much your gap insurance policy will cover is usually dictated by your vehicle’s value and how much you owe on your loan or lease. Otherwise, gap insurance typically does not have any maximum limit.
Some car insurance companies offer loan/lease payoff coverage, which is similar to gap insurance, but it typically has a maximum coverage amount of 25% of the vehicle’s value.
High-end vehicle manufacturers, like BMW, Porsche and Bentley, may limit their gap insurance payout to $50,000 or 150% of the vehicle’s value.
Not every manufacturer limits how much gap insurance can cover.
Gap insurance covers the difference between your auto loan and the car's depreciated value. In other words, gap insurance helps you pay off your auto loan or lease if you're no longer able to drive your car due to it being totaled or stolen.
It’s important to note that gap insurance only pays when your car is totaled or stolen, so you cannot file a gap claim if you simply can’t make your loan or lease payments. Additionally, most gap insurance policies will not pay your … read full answercollision or comprehensive deductible, if applicable.
Loan/Lease Payoff Insurance: Gap Insurance Alternative
Not all insurance companies offer gap insurance, but some offer loan/lease payoff insurance as an alternative. Loan/lease coverage is similar to gap insurance, except that it usually only pays up to 25% of the vehicle’s actual cash value toward the policyholder’s loan or lease balance, which might not be enough to cover the full amount owed.
If you’re curious about gap insurance or loan/lease coverage, you should check with your insurance company to see if they offer either.
Gap insurance does not cover routine maintenance, a damaged car that is not declared a total loss, or missed car payments. Gap insurance covers the difference between a car’s actual cash value and the balance left on the loan or lease if the car is totaled or stolen. This coverage is not required by law, but some lenders and lessors require it for a financed car.… read full answer
What Gap Insurance Does Not Cover
The total cost of a brand-new replacement vehicle
Routine repairs or replacement parts
Damage to a rental car after an accident
The cost of using a rental car while your vehicle is being repaired
Any balance from a previous loan that was applied to your current loan
The reduced value of your car if it is damaged in an accident but not totaled
Missed car payments as a result of financial difficulty, injury, disability, or death
Extended warranties that were part of or added to the original loan or lease balance
Damage to someone else’s property, injuries, or lost wages as a result of an accident
The difference between a car’s cash value and the balance of a loan or lease after engine failure
Gap insurance may not pay for your comprehensive or collision coverage deductibles, either, but each insurance company has its own rules in this regard.
Gap insurance costs around $3 per month when you add the coverage to your car insurance policy. When you purchase coverage from a car dealership instead, a gap insurance policy will cost a total of $400 to $700 in most cases.
A gap insurance policy covers the difference between what a leased or financed car is worth and how much the driver owes Like any other type of insurance, the cost of gap insurance varies depending on the car’s value and the driver’s risk characteristics, such as age and claims history.… read full answer
How to Get Cheap Gap Insurance
Some car leases include gap insurance at no added cost. But besides this free coverage, buying gap insurance from your normal car insurance company is usually the cheapest option. On average, gap insurance will only add around 5% to 6% to your comprehensive and collision cost. But since gap insurance is a relatively uncommon kind of coverage, not every insurance company offers it.
If your insurer does not provide gap insurance, it’s a good idea to compare quotes and see if it would be worth switching companies. If not, some companies offer standalone gap insurance policies. Also, if you are financing a car through a bank or credit union, these institutions will usually offer gap insurance upfront for anywhere from $200 to $700.
How Much Is Gap Insurance from a Dealer?
Dealerships are often the most expensive source of gap insurance, costing around $400 to $700 up front. If you are buying gap insurance that is rolled into your loan, bear in mind that you will be paying interest on the gap insurance premium as well as the rest of the loan’s balance. As a result, you’ll actually end up paying more than the original cost. This also comes into play wherever else you might get auto financing and gap insurance at the same time, including banks and credit unions.
However, price is not the only factor that should affect your decision of where to buy gap insurance. You should also consider how long your gap coverage will last and how long you will need it. Similarly, some gap insurance policies will pay your deductible, although many will not. And most gap insurance policies do not pay for anything you owe from a previous car loan.
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