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Q: What is gap insurance? I’ve read that you can get gap insurance when you lease a car, in case you have an accident. From what I understand, many insurance companies will only cover the market value of a car, not what is owed, and gap insurance covers the balance. Is this the case when you buy a car?
–Via the Internet
A: GAP is actually an acronym for guaranteed auto protection. It is an option offered by insurance companies that, in case of accident or theft, covers the difference between the car’s actual cash value and what is owed to the leasing or financing company. It is almost automatically offered in the case of leased vehicles. It can also be an option for cars that are purchased, but it is only available in some states and from some insurers.
A typical comprehensive and collision policy will usually only cover the fair market value for your car. Because cars depreciate so rapidly, an accident that totals your car could leave you with a sizable chunk left to pay back to the bank. Unfortunately, many are not aware of gap insurance or reject it on the basis of cost, even though the additional coverage would be a $10 to $25 increase.
Because it is not necessary coverage for the life of your car, many carriers will only offer it for a short while. If you’re shopping for auto insurance, and gap insurance is available in your state, it might be worth selecting a company that offers it. If you’re happy with your carrier, it might not be a reason to switch, but it’s worth investigating.
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