Gap insurance covers the difference, or “gap,” between the actual cash value of a totaled car and the remaining balance on your loan or lease. That means gap insurance helps you pay off your loan or lease if your financed vehicle is totaled and you are left owing more than what your car is worth.
What Gap Insurance Pays for If Your Car Is Totaled
- Your remaining loan balance
- Any amount owed on a lease
- Negative equity from a previous vehicle that was rolled into your current loan
It’s important to note that gap insurance only pays when your car is totaled, 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 collision or comprehensive deductible, if applicable.
What Loan/Lease Payoff Insurance Covers
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.
To learn more, check out WalletHub’s guide to gap insurance.
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