Catherine C Ford, Writer
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Gap insurance covers you and any driver who is listed on your auto insurance policy or has permission to use your car. Gap insurance follows the car, not the driver, so when you give someone permission to drive your car, they are covered by your insurance. This is referred to as permissive use.
For example, if a friend borrows your car with your permission and gets into an accident that totals the vehicle, your gap insurance would still apply.
Key Things to Know About Gap Insurance
- Gap insurance pays for the “gap” between your vehicle’s actual cash value and the amount left on your loan or lease if your car is totaled or stolen.
- You can purchase gap insurance from a dealership for a one-time cost of $400 to $700, or from your insurance company for about $20 to $40 per year.
- You are not required to carry gap insurance by law, but this coverage may be required by your lender or lessor if you finance your car.
- Having gap insurance is particularly beneficial if you made a low down payment, your car has a high depreciation rate, or you have a long financing term.
- Other drivers may not be covered by your gap insurance policy if they are excluded from your auto policy, they drive your vehicle without your permission, or they do not have a license.
For more information, check out WalletHub’s guide on gap insurance.
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